| I see that a decline in durable goods orders is adding to Wall Street’s woes. The press is calling the decline “unexpected” since analysts were forecasting a small increase. But such expectations for this leading indicator of capital spending seem blindly optimistic in light of current trends.
Consider the fact, as Wynne Godley of the Levy Economics Institute does in a sobering analysis released last April 12, that in light of the surging trade deficit, the current expansion depends even more heavily on such spending. Yet by Godley's calculations, such a trend is unsustainable.
No link’s available yet on the institute’s website, so I’ll summarize the press release I got on Godley’s policy note. Non-government debt already stands at 175 percent of disposable income, he finds, and interest rates seem headed nowhere but up. Absent a sizable decline in GDP growth from its current rate of 3.5 percent to 4 percent a year, Godley says the trade deficit is unlikely to shrink significantly unless exports rise at an annual rate of 12 percent during the next four years, a rate rarely seen even during this country’s most halcyon days.
What about the possible stimulus of another round of tax cuts? A repeat of what Washington did on this front earlier this decade would take the budget deficit to an unprecedented 9 percent of GDP. And what did even the earlier round achieve? The solution, says Godley, will probably require “a new international order,” yet he sees nothing along those lines in the offing.
Godley has been dead on in his recent predictions. So while I hate to add to the gloom, it sounds to me like we’re in for another recession before Bush leaves office. No wonder IBM has joined the crowd and boosted its dividends and share buy back program rather than increase spending. And yet as Godley notes, absent more such spending, there’s little hope of sustaining the expansion. Talk about a vicious circle.
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