Have We Hit Bottom?
Apr 15th, 2009 by David Anderson
Many economists are predicting that we will start to emerge from the recession by September according to the Wall Street Journal. It may be time to buy selective stocks.
Man the economy is turning around on Monetary policy before we even spend the stimulus. What gives. I thought we needed Mr. Obama to save us all.
Read the speech.
This recession is fundamentally different from the others. If you don’t know that you have not been paying attention.
Without stimulus and financial restructuring, we are headed for an indeterminate string of double-and multiple-dip recessions.
It is cruel and irresponsible to ask American families to bear that pain – especially when the solutions are at hand.
Without restoration of real consumer income (through a combination of short-term stimulus, and long term economic policy) there will be no lasting recovery.
The stimulus will kick the economy into overdrive by this fall. That is the surge that will begin to repay the expense of the stimulus.
Judge Obama and the Fed by how well they harness that surge and use it to build a healthy economy – finally, on a sounder footing than Republi-nomics.
But at least we will all have jobs and a roof over our heads while they are figuring it out.
Simple answer to the headline question – nope.
“As interest rates rise, fewer people will be able to afford new homes, and businesses will find fewer profitable investments, all of which will keep unemployment rates high. The Federal Reserve will be under tremendous political pressure to create more money – largely by buying its own government debt – which in the short run can temporarily decrease interest rates, but over the long run will cause interest rates to rise steeply as inflation comes roaring back. The Fed will then have to stomp on the monetary brakes again, which will lead to another recession. This is precisely what happened during the late 1970s and early 1980s until there was the switch in economic policy under former President Ronald Reagan.
Unless the Obama Democrats suddenly get religion and start applying real cost-benefit analyses to their proposals before they leap, the United States is doomed for a repeat of the late 1970s – higher taxes, higher inflation, slower growth and more unemployment – when productivity growth was less than half the level of the last decade. Individuals can partially protect themselves by buying inflation-indexed U.S. government bonds (as long as they remain available), reducing their debt loads, particularly nonfixed-interest-rate debt, diversifying their assets across the globe, and – perhaps, praying for a new Mr. Reagan.”
Complete article, from economist R. Rahn, an outstanding economic prognosticator;
http://washingtontimes.com/news/2009/apr/17/return-of-the-money-snatchers/
This is “Republi-nomics”, which noman already countered in post #1: “This recession is fundamentally different from the others. If you don’t know that you have not been paying attention.”
Their supply side tax cuts/non-regulation/small government ideology has been proven wrong. So they are left with only one thing to say: “No!”
Admittedly, the Obama team may not be 100% on target. I question their bias in favor of Wall Street instead of Main Street. Why doesn’t the party of “big business” give him credit for at least that? Answer: All they want to do is bash Obama, in preparation for the 2010 elections, when the economy will certainly still be struggling in some sectors.
No, instead of working with Obama to pull us through this, they are posturing for 2010. What does this tell you about their patriotism?
Note: What I am saying about patriotism is the Repubs have refused to grasp Obama’s extended hand to work out solutions together. That is putting party over country, as I see it! In contrast, the Dems worked with Bush post-9/11, until after several years it became clear that they had been duped. Am I correct?
And if I may say so, part of the problem Repubs have is their inability/unwillingness to compromise. It is as if their party ideology is exactly like a fundamentalist religion, absolutely right, unchangeable, regardless of what history has shown.
What Repubs view as strength is actually weakness, which is one big reason they lost in 2006 and 2008. They think their formula for 1994 will work again. Not a chance, in my view. Not only do they not have a leader (yet), the circumstances this time are dramatically different, to which they have not (yet) adjusted, as they remain out of touch with Main Street.
I agree that Republicans are out of touch with “Main Street”. They lost in 2006 and 2008 because of it. The Republicans in governernment aren’t just out of touch with America’s “Main Street”, they are out of touch with their own “Main Street”. Once you loose your base the loss of elections is sure to follow.
Unfortunatly, I am not convinced that Democrats are any more in touch with “Main Street”. They simply do a better job of getting their “Main Street” in touch with them, and telling “Main Street” that they feel its pain. I see a lot more telling than listening from everyone in Washington.
Also to think of “Main Street” as a monolithic group is a mistake. There is an east and a west “Main Street”. Both parties “hear” the part of “Main Street” that listens to them and hearing all the cheerleaders in their echo chambers they think they are on track. They tend to forget about the other end of “Main Street”. They do so at their peril as well as the peril of the country.
From a “Main Street” Republican perspective the problem with the DC Republicans is that they did compromise the values of the party again and again, not that they remained unchangeable. They went for big government spending, a poor perscription drug plan, weak border enforcement and imigration policy, and a lot of other compromises against what the party stood for. “Main Street” Republicans couldn’t get motivated to support that and the Democrats on “Main Street” had no reason to vote for that because Democrats would do big government a lot better than Republicans.
What all you teabaggers are afraid of is that Obama’s plan will work.
I think all the current growth assumptions are too low. Eventually the stimulus will hit the economy and stocks will kick into overdrive, and people will start selling homes again at better prices. And workers who are hanging on will suddenly be able to retire, freeing up more jobs.
And if Obama can manage to get the capital gains tax boosted before that happens, and the upper bracket cuts expire, the deficits are going to start to melt away. And nobody will complain about taxes; they will be too busy counting their money.
Y’all are forgetting that in 1992, the CBO reports also looked pretty bad… but every quarter they would issue revised projections that looked better and better each time. I expect the same thing to happen again.
“What all you teabaggers are afraid of is that Obama’s plan will work.” – noman
Correct! but obviously for different reasons than you are suggesting.
At the very least certain aspects of President Obama’s plan probably will work, however not all of the expected results are desirable to us. Not to mention letting the free market correct itself would have worked as well and wouldn’t include some of the side effects we detest. Once the free market gets word that things in DC have settled down, it will start to figure out the new system and how it can be manipulated into profits. When and if that happens the economy will improve at least for a time.
Also no one will ever be too busy counting money. If they have that much they can hire someone else to do it for them.
Lines like that remind me of the cartoon An American Tale when the imigrating mice sing “There are no more cats in America, and the streets are paved with cheese.” The cats will still be there in force and the cheese will never be anywhere near that plentiful as they claimed, but it makes people happy and easy to manipulate for a little while till reality hits. The truth is America is a great land but not without work.
letting the free market correct itself would have worked as well and wouldn’t include some of the side effects we detest.
No it would not have worked as well. GDP of course would recover somewhat, but a laissez-faire approach would freeze real wages at the stagnant Bush levels – wages at which people can’t even pay their bills.
What Obama’s plan is really buying is a complete roll-back of Republi-nomics – a restructuring of the economy that restores real wages, and rolls back the massive upward concentration of wealth.
As you may remember, I support stimulus in concept, though I did not like the bill that passed because it did not target the right areas of the economy. It should have had serious business tax cuts, more for small businesses, auto loan deductibility, the first time homeowners credit, dealt with mortgages that were salvagable, a real investment in our energy infrastructure, and aid to the states. It actually fell quite short in all of these areas. It will do some good but is a horrible deal for the costs. There is nothing wrong with moving forward projects already on the drawing boards. I support that part. The rest of it was nonsense.
This is “Republi-nomics”, which noman already countered in post #1: “This recession is fundamentally different from the others. If you don’t know that you have not been paying attention.”…Perry
Does norman have a Phd in economics? I didn’t think so.
The current situation has nothing to do with supply-side economics. One major problem was that we had a corrupt, quasi-government entity (Fannie Mae/F. Mac) guaranteeing bad loans. Another problem is that many of our manufactured goods cannot compete with foreign or non-union made products, a problem that will inevitably get worse as China, India and Brazil move into auto, software, hardware and aircraft manufacture (as the US unionizes mom-and-pop drugstores). Our younger generation is obsessed with electronic gadgets and MySpace as China produces engineers at a 20-1 rate. Americans spend like drunken sailors; using a credit card, of course.
Some things never change, such as the axiom that you can’t spend your way out of debt (see FDR Treasurer S. Morgenthau). With higher taxes, forced unionization, nationalization of the failed American auto industry, naive energy policies, failing schools (with the highest per-pupil spending in the world), and career parasites who have never run a much as a lemonaid stand (BO, Biden) dictating policy, confused, polyglot America had better prepare for some serious belt-tightening.
To paraphrase Toynbee, civilizations die of suicide, not by murder.
The US currently has plenty of capacity, inventory, and liquidity… what we don’t have is consumer demand (i.e., disposable income). That is what the stimulus is for.
The old trickle-down theory about “Take care of business and the rich, and they will invest and create jobs for us…” it didn’t work. They didn’t invest, or if they did it was in stupid stuff.
Now it is time for trickle-up: put some money in the hands of consumers and let investor dollars chase the demand.
“…what we don’t have is consumer demand (i.e., disposable income). That is what the stimulus is for.”
Noman, would you mind explaining to me how this stimulus package is going to increase the amount of disposable income the average, middle-class family is going to have?
I am obviously in the dark on this one.
Certainly.
In this recession we have lost 5 million jobs and there are lots of people who are underemployed.
This means these people have lost their incomes, and therefore are not buying anything.
But when employers get large stimulus contracts, they will hire those unemployed people, who will then buy stuff so other employers can hire more people, and so forth.
In the short run, the relief portion of the stimulus such as the COBRA subside and the unemployment benefit extension will allow people to continue buying stuff so employers don’t have to go out of business.
Sure it costs money, but the damage caused by doing nothing would cost more. And the new growth caused by the stimulus will offset the cost.
I think it is clear that when you don’t have a job and you get a job, your income goes up. Does that answer your question?
Glad I could help.
“The US currently has plenty of capacity, inventory, and liquidity… what we don’t have is consumer demand (i.e., disposable income). That is what the stimulus is for. ”
-Noman
Capacity – definitly yes, we have a ton of capacity to produce, much of what we could produce is not being produced for political reasons.
Inventory – it depends on the product.
Liquidity – Not so much, but with the false liquidity of being able to print more of its currency on a whim we are faking it pretty well, for now.
The public works projects should help reduce that jobless rate. They may not be the best stimulus, in my opinion, but they do directly stimulate some aspects of the economy and indirectly stimulate others. If the timing is right they could make a temporary bandage to minimize this downturn’s effects on citizens until the free market rights itself. I only wish the road construction and other infrastructure projects comprised a larger portion of the bill, and that some of the other things were just cut out of it.
“..what we don’t have is consumer demand (i.e., disposable income)…”
One problem is that we have had too much ‘demand’ for the latest gadget (paid for with the credit card, of course), with little or no saving. Time to pay the piper.
One problem is that we have had too much ‘demand’ for the latest gadget (paid for with the credit card, of course), with little or no saving. Time to pay the piper.
This is an excellent moral point, but one with little economic bearing.
As soon as consumers start buying more gadgets, conservatives will once again be praising the strength of capitalism and pointing to the entrepreneurial success of the gadget-sellers and the resourcefulness of the financial sector that issues the gadget-buying money.
Going broke (or, bankrupt) has no ‘economic bearing?’