Recent figures showing slowdowns in housing, business investment and consumer spending have compelled economists to cut growth forecasts for the second half of 2010 while GDP grew at an annual rate of only 1.6 percent in the second quarter. The risk of another GDP-based recession increased on the heels of poor economic indicators. Mark Zandi, chief economist at Moody’s Analytics Inc. this week said the likelihood of the economy slipping back into a recession is now 33 percent, up from a 20 percent chance 12 weeks ago. New York University economist and forecaster Nouriel Roubini, who predicted the financial crisis, said the odds of a return to recession at 40 percent.

Corporate profits grew last quarter at the slowest rate in a year and employee wages from the past three months have been adjusted lower. Official unemployment rates remain high across many states. Some good news is the savings rate did recently jump to 6.4 percent indicating American citizens are ready to shift from a consumption-based economy. In 2005, the rate of savings in America actually reached 0 percent, reflecting a decades-long reduction in savings. A major contributor to foreign takeover of U.S. assets was the lack of savings in America. Our companies had to rely on foreign investment to fund their enterprises and as a result ownership was transferred. Fortunately, Americans are increasing the rate they save by unprecedented amounts. Shifting from a consumption/deficit economy is essential to reverse our economic tide.

Speaking on the National Export Initiative in March, President Obama addressed this need:

“We’ll also work within the G20 to continue global recovery and growth. Last year, when the G20 met to coordinate the international response to our global economic crisis, we agreed that in order for that growth to continue, we needed to rebalance our economies. For too long, America served as the consumer engine for the entire world. But we’re rebalancing. We are now saving more. And that means that everybody has got to rebalance. Countries with external deficits need to save and export more. Countries with external surpluses need to boost consumption and domestic demand. And as I’ve said before, China moving to a more market-oriented exchange rate will make an essential contribution to that global rebalancing effort.”

Despite criticism and general disapproval, President Obama’s words highlight his understanding of what led to our crisis. The natural inclination to contribute his words to mere rhetoric with no subsequent action is probably high. Normally it should be, but the National Export Initiative has already made considerable efforts to strengthen U.S. trade laws, seeking to counter the backdoor protectionism of other countries and equalize world trade.

President Obama continues to baffle. Above we have an example of a President who understands what caused the crisis and what needs to be done to reverse it. However, Obama negates his own agenda by continuing to support the Korea-US Free Trade Agreement. If the President truly understood our crisis as the above suggests, he would oppose KORUS in its current form. What’s your game Mr. President?

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