The estimated and revised GDP numbers are out today and as the graph above shows its dismal. It turns out the recession was significantly deeper than initial estimates, the recovery was more tepid than initially thought and we are teetering closer to a double dip recession than previously was the case. For purposes of where we are today, the downward revision of GDP in Q1 of 2011 from an initial estimate of 1.9 percent to a revised 0.4 is alarming.
The debt crisis will not help the economy. Its continuation will impair confidence and its resolution will likely impair government spending which in itself will tip the economy into recession just as the election season gets underway. Goldman Sachs found that government spending cuts hurt GDP more in Q1 of this year than any other time since the 1980s. Dramatic government spending cuts right now are economic suicide for the US and political suicide Obama Administration. He will not get reelected if we are in the throes of a recession on election day--even if this coming recession is triggered by the GOP arson squad in the House. As I, and others, have argued many times, the economy desperately needs short term stimulus with long term spending cuts.
Obama has options. As I have previously shown the Treasury holds delegated power from Congress to print money under 31 U.S.C. section 321. As Professor Timothy Canova recently highlighted to me it holds express power to mint platinum coins without limitation. Therefore, the President could resolve this debt impasse now by announcing that the Treasury will not allow default and will provide sufficient legal tender to pay all of its obligations in a timely fashion. The Fed would doubtlessly follow with an announcement that it stands ready to neutralize this monetary expansion as needed through the sale of bonds. It would be a fatal blow politically and economically to the folly of the far right extremists now in control of the House. More importantly, Obama is Constitutionally bound to avert default and make lawfully authorized disbursements.
ADDENDUM: For a similar analysis of the power of the Treasury from Professor Jack Balkin see http://www.cnn.com/2011/OPINION/07/28/balkin.obama.options/index.html?hpt=hp_c1