Can the Federal Reserve Help Prevent a Second Recession?

William Greider | November 7, 2012

Despite what you may have read in the newspapers or heard from the president’s cheerful speeches, the economy is not out of the danger zone. Despite some encouraging indicators recently, both the US economy and the world’s remain in perilous condition, still threatened by the larger catastrophe Washington officials thought they had averted. That is, a renewed global recession will compound the losses and can swiftly morph into the big D, for depression.

At least nine of the economies in Western Europe are already contracting. Their euro debt crisis threatens to pull down others. The anemic American recovery remains stalled by its blocked housing sector—there are still too many homeowners drowning in mortgage debt to trigger normal home sales and construction. Private investment is sagging, corporate profits softening too. Even China’s growth is slowing at an alarming rate.

If Congress fails to defuse the threat of the post-election “fiscal cliff,” austerity will be in the saddle for sure. The International Monetary Fund, not usually known for dire forecasts, predicts increased risk of worldwide stagnation, and has warned specifically against the “excessive fiscal consolidation” of austerity measures. Why haven’t the presidential candidates talked about this? Maybe for the same reason they didn’t talk about global warming: they saw no votes in either.