A Recession in 2012?

A Second Great Recession in 2012?

Four Horses of the Apocalypse

By Peter Morici

Twitter @pmorici1

Just as the U.S. economy appears improving, four sets of forces could thrust America into an abyss rivaling the Great Depression.

First, for decades, the Washington has pursued more open global trade and domestic deregulation. These unleashed great potential for innovation and growth; however, China and other nations have abused freer trade through export subsidies and import barriers to boost their economies at the expense of others. And, in some industries, a few players have amassed great monopoly power-notably, large financial houses on Wall Street and Europe now have an iron grip on lending.

The Great Recession was caused by too little demand for what U.S. and European workers make and faulty banking practices. During the years prior to the collapse, China and other Asian mercantilists undervalued their currencies to increase exports but refused to purchase nearly as much as they sold in the United States and Europe. Unemployment in the West should have resulted, but banks kept things going by lending too much to consumers on their homes and credit cards. When mortgages and mortgage-backed securities failed, the system collapsed.

Since mid-2009, stronger exports and manufacturing have powered a modest U.S. recovery. However, little has been accomplished to curb Asian mercantilism or the Wall Street casino culture. Now, China is addressing its own housing bubble and bank troubles by again devaluing its currency to further boost exports, and U.S. banks are again busy trading, taking bets but not making loans to small and medium-sized businesses. Next year, more competition from China and the credit shortage will combine to slow U.S. growth and jobs creation.