John Mauldin rates it fairly likely:
…My take is that Bush cut taxes in 2001 and again in 2003 in the face of weak economic circumstances. Unless something changes, we are going to enact the largest tax increase in US history. And that will be matched by equally large tax increases and spending cuts by state and local jurisdictions. And we are going to do it at a time when the above research suggests that growth may be in the 1% range and unemployment will still be in the 9-10% range. Extended unemployment benefits will be long gone for many people. Housing will still be in the doldrums (more on that in next week’s Outside the Box) and housing prices are likely to fall from here.
Growth in the first quarter was revised down (again!) to 2.7%, or about half that of the 4th quarter of last year. Much of what passed for growth was inventory rebuilding and stimulus. The underlying economy may be weaker than the headline number reveals. And by the 4th quarter, there is very little stimulus.
Given the above, I think we have to increase the odds of a 2011 recession to 60%, and those odds will rise and fall based on the economic performance of the next two quarters.
Personally, I don’t think we ever really left the recession – in terms of real growth absent the massive, bankrupting bit of borrow-and-spend from Obama and his Democrats, my belief is that the private economy has not stopped contracting since 2007.
There is probably no way, at this point, to stop the GDP numbers from slipping back in to recession either later this year or early next. The only thing we can do is soften the blow – and the best means of doing so is to renew the Bush tax cuts.
This is not likely to commend itself to Democrats who are salivating over the huge tax increase – they think it will provide them the revenue to allow another round of vote-buying spending initiatives. They don’t realize that any revenue gains will be swiftly offset by renewed economic decline, and thus lower revenues.
Meanwhile, the debt burden remains – public and private. And once there comes a time when the money men figure that the governments of the world can’t meet their debt obligations, then there will be a run for the financial exits. We’re in for a long, rough year, at least.
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