Richard Whalen

According to the federal government’s data, the economy has steadily lost momentum since last spring when the subprime mortgage crisis surfaced. In the third quarter, Gross Domestic Product (GDP) grew by an impressive 4.9 percent, but it will slow to only one percent or less in the year’s final quarter.

“American consumers may finally be showing some restraint…., writes Floyd Norris in the New York Times. The rate of increase in imports has begun to decline and is now at its lowest level since 2002 when the economy was only slowly emerging from a recession.”

In November, the Labor Department said import prices had jumped 2.7 percent, the fastest monthly increase since 1990. This steep rise was due to soaring prices for petroleum imports, which rose 9.8 percent.

Martin Feldstein, President Ronald Reagan’s chief economic adviser and Chairman of the National Bureau of Economic Research, said in an interview last week: “Whether it be consumer confidence or real incomes or business plans, we’re seeing an economy that is continually slipping and therefore in an increasing probability of a recession next year. The Federal Reserve has to be prepared to continue cutting interest rates as we go into 2008.”

Should the economy stall out, Feldstein strongly implied, the consumer-led downturn will be extremely difficult to turn around and revive without the direct stimulus of generous consumer tax cuts to bolster demand.

A recession that leads only to more recession, a recovery that slips and fails, and then recovers but fails again – that is a rare, protracted economic phenomenon called a “depression.” We Americans like to believe that we have repealed the remote possibility of “another depression,” like the 1930s. But we have not, as Alan Greenspan well knows.

The Bush Administration, in the words of Republican Senator Chuck Hagel of Nebraska, is “the most arrogant and incompetent in our history.” This disastrously inept, wrong-headed administration is entirely capable of allowing the debt-swollen, war-ravaged economy to slide into a severe recession that becomes a 2008-style depression under the weight of the troubled banking industry and collapsing consumer credit system. Congress is financially illiterate and insulated from economic reality.

Fortunately, Federal Reserve Chairman Ben S. Bernanke, an expert on avoiding deflation, understands what must be done, and he is doing it. By the time America elects a new president in 2008 and installs a new administration in 2009, the recession could gain a two-year head start. A massive, cumulative debt collapse is a real danger. Congress needs to take corrective bipartisan action NOW.