As the United States economy continues to battle recessionary conditions, recent months have seen developments that some have hailed as indicators of economic recovery. First, stock markets witnessed an unexpected rally from early March, with the Dow Jones industrial average jumping 57 per cent — however volatility has soared since the crisis began, with $6.9 trillion of U.S. shareholder value wiped out in 2008 alone. Secondly, banks that accepted taxpayer money under the Troubled Asset Relief Program, including Goldman Sachs, J.P. Morgan, Morgan Stanley, and U.S. Bancorp, repaid their debt to the federal government. Subsequently, some of them went on to make record trading profits even as commercial banking languished, most notably Goldman Sachs which made $3.44 billion in profits for the second quarter. Thirdly, the U.S. economy posted growth results that heralded, technically, the end of the recession. Supported by massive stimulus packages to banks and automobiles, the third-quarter growth rate of 3.5 per cent marked the first quarter of positive growth in more than a year.
But juxtapose these indicators of recovery with the looming symptoms of recession that remain, and optimism about a full-fledged return to pre-crisis conditions seems hollow. Unemployment in the U.S. recently climbed to 10.2 per cent and, by some predictions, will remain above 8 per cent even two years from now. After the end of the ‘cash for clunkers’ scheme aimed at boosting automobile sales, many of the large car manufacturers reported a sharp fall in sales in September. Quantitative easing by the U.S. Federal Reserve has made little difference to bank lending to customers — total consumer credit decreased at an annual rate of 6 per cent in the third quarter of 2009, according to the Fed. The International Monetary Fund predicts that economic growth in the near-term will be “sluggish, credit constrained, and, for quite some time, jobless.” There is general agreement that the signs of what looks like a recovery are driven by the massive fiscal stimuli supplied. There is even a risk that these signs will encourage conservative lobbies to press for rolling back fiscal deficits. Such misguided efforts must be resisted if the current low ebb of economic activity is to revive. A premature 1930s-style rollback runs contrary to the need for even higher levels of spending on public infrastructure and social services, vital to individuals and households who will remain in the vice-like grip of housing foreclosures and job losses for years to come. President Obama cannot afford to be fearful of deficits.