By Daniel Gross
In Washington, on Wall Street and in anxious boardrooms and kitchens across the country, concerns are rising about the possibility that the U.S. economy could slip back into recession - a so-called double dip.
Perhaps most distressing, the vital forces of monetary and fiscal policy that the government marshaled to stave off the Great Recession last year seem to have flagged. In 2008 and 2009, the Federal Reserve (monetary policy) and the political system (fiscal policy) rushed to the aid of the stricken patient.
The Fed guaranteed and bought financial assets, slashed interest rates and flooded the financial system with money. Congress and the White House pushed through an aggressive $787 billion stimulus package.
But the sugar high of low interest rates and government stimulus spending is wearing off. The Federal Reserve, so imaginative when it came to saving the financial system, seems to have run out of ideas for dealing with higher unemployment. More than half the stimulus, about $417 billion, has already been spent.
Even as economic momentum flags, headwinds are gathering strength. In January 2011, most of the Bush-era tax cuts are slated to expire; soon after, the Fed is expected to start raising the rates it controls. The combination of higher interest rates and higher taxes is likely to tamp down consumer spending.
Sounds pretty grim. But if we had thrown in the towel every time monetary and fiscal policy failed to meet expectations, Americans would be migrating to Mexico in search of jobs. And while policy helped stop the panic and shocked the economy back to life, new government initiatives are not going to drive the next phase of recovery. If American businesses and consumers want to avoid a slowdown, they're going to have to do it themselves. The good news: The expansion can continue if the U.S. economy taps into some of the same nongovernmental forces that helped propel the recovery of 2009 - a capacity for innovation, resilience and, most of all, an ability to ride the continuing wave of global growth.
This do-it-yourself stimulus has already started. Corporate America's balance sheet has never looked better, and consumers are paying down debt and bolstering savings. The challenge is a reluctance to spend. To try to jump-start consumption, companies are enacting mini stimulus programs of their own. Teen-oriented retailer American Eagle is offering a free smartphone to shoppers who try on a pair of jeans (and sign up for a plan). Chrysler just kicked off a round of promotions that includes zero-interest financing and an offer to cover the first two installment payments.
With banks reluctant to lend to small businesses, on July 6 warehouse giant Sam's Club announced a new program with an approved Small Business Administration lender, Superior Financial Group. Sam's Club will essentially subsidize a chunk of the loan process to enable its members to borrow up to $25,000 - with the hopes they'll spend the proceeds in the retailer's wide aisles.
Connecting to overseas markets is perhaps the most vital tactic do-it-yourselfers can pursue. For while Europe is faltering, the global economy continues to recover. The International Monetary Fund on July 8 increased its forecast for 2010 global growth to 4.5 percent, in large measure due to continued strong performances in China, India, Africa and Latin America. .
Many experts have discounted President Barack Obama's call to double exports by 2015 as a pipe dream. But exports have been an engine of U.S. growth, up 17 percent in the first four months of 2010 from the comparable period in 2009. Rapid growth, particularly in Asia, is conjuring immense markets out of nothing for American producers.
Disney is building a chain of language schools in China that employs its famous characters to instruct Chinese youths in English. On July 10, Apple opened a new store in Shanghai, one of 25 it plans to launch in China through 2012. Like many things in China, the store design is a knockoff: The entrance is a glass cylinder that looks just like the entrance to the Apple Store in Midtown Manhattan.
With banks still reluctant to lend, businesspeople and entrepreneurs frequently have a tough time finding new capital. Here, again, global growth is providing new opportunities.
The combination of a huge, wealthy domestic market, a highly productive labor force, deep capital markets, and a legal system that protects intellectual property makes the United States a major destination for foreign direct investment - $44 billion in the first quarter of 2010. According to Thomson Reuters, so far this year there have been 397 deals, worth $116 billion, in which foreign companies bought U.S. firms, up dramatically from the first half of 2009.
Much as immigrants frequently revitalize abandoned urban areas, well-capitalized foreign firms have proved to be a source of vitality for crippled economic sectors. And even as American banks cut back on lending, foreign banks are entering the market as a new source of credit. The data point to a great irony of today's economic vista, notes Sebastian Teunissen, adjunct professor at the University of California-Berkeley, Haas School of Business. Just as confidence among Americans in the strength of the recovery is waning, foreigners' faith in America's future is on the rise.
"You're not going to put money into a country if you think the economy is going to tank," Teunissen says. In the first year of this expansion, the U.S. economy found that the greatest source of support came from our nation's capital. In the second year, it will likely come from foreign capital - and our own ingenuity.