Watching things unravel in slow motion

Moody’s Analytics this week significantly lowered its expectations for economic growth for the rest of the year, citing an “extraordinary reversal of fortune.” Whereas the company expected the economy to grow at 3.5% in the latter half of 2011, Moody’s now sees GDP growth closer to 2%.

The Philadelphia Fed index, a closely-watched metric for factory activity, was atrocious this morning; existing home sales dropped unexpectedly; and first-time unemployment claims have taken a turn for the worse.

Morgan Stanley, meanwhile, cut its global growth forecast for the next year by a full percentage point. It cited “a policy-induced slowdown,” aggravated in part by “the prospect of fiscal tightening” in the United States and Europe.

Ezra Klein explained:

In other words: Growth is weak and policymakers are hurting rather than helping. The debt-ceiling debate hurt. The dithering response to the Eurozone’s debt crisis hurt. And the expected austerity in both the United States and Europe is going to hurt even more. JP Morgan notes that one reason they think the United States might tip back into recession is that in the first quarter of 2012, there will be “an automatic tightening fiscal policy if, as our US team currently assumes, this year’s fiscal stimulus measures will expire.”

The economy may very well be slipping back into a recession, but it’s within our power to prevent this. Too many policymakers simply don’t want to. We’re headed for a cliff, but there’s plenty of time to hit the brake and turn the wheel. Conservatives simply refuse. Their ideology demands it.

We are talking about a rare sight: a recession conservative politicians are causing through neglect, ignorance, and fealty to a misguided philosophy.

Wall Street is effectively pointing at a downturn. Republicans, who’ve been wrong about every economic challenge of the last quarter-century, are practically aiming for the disaster Wall Street is telling them to avoid.

Josh Marshall added, “It really is a downturn made in Washington. Mind-numbing to behold. But then, who hires Washington?”

Update: In case this isn’t already clear, the rules of supply and demand still exist, and the economy is lacking demand. Democrats prefer to make more public investments, which boost demand and inject capital into the economy. Republicans prefer austerity, which lowers demand and takes money out of the economy. Every time you hear some GOP politician say, “What we need right now is to cut spending,” he or she is effectively begging for an even weaker economy.