SAN FRANCISCO, CA - What is shaping up as the deepest and longest recession since the 1930s will end in the second half of 2009, Wells Fargo’s senior economists predicted during the company’s annual economic forecast teleconference.
The ongoing impact of $2 trillion in government stimulus, with other factors such as pent-up consumer demand and returning consumer confidence, will finally lead to a turnaround, and the third quarter of next year will be “better than expected” by many, said Dr. Jim Paulsen, chief investment strategist of Wells Capital Management. “It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid and all of a sudden it goes ‘poof!’” Paulsen said.
Dr. Scott Anderson, senior economist for Wells Fargo & Company, predicted that the housing sector will lead the way. “One bright note is that the sector that led the economy into this morass is about to turn the corner, perhaps as soon as this summer, and will start to lead us out,” Anderson said.
Monetary policy should be augmented with fiscal policy
Dr. Eugenio Aleman, senior economist for Wells Fargo & Company, said he was most concerned that monetary policy – the injecting of hundreds of billions of dollars into the economy through the financial sector – is not helping those who need it most.
“Current monetary policy will help only those households that do not need help – those that have plenty of money and have a stable job,” he said. “They will refinance, buy homes and consume. It will not help those who are struggling to make ends meet, or have lost their jobs or may soon lose them, because no financial institution is going to lend them money to buy a home, no matter what the interest rate is.” He said it is up to the new administration to help these households through fiscal policy, with government spending that will create jobs.
Anderson said the current job market is one of the worst in decades, with another 3.7 million jobs expected to be lost next year. That means that job losses in this recession will total 5.5 million, twice as many as were lost in the 1981-1982 recession, the second worst since World War II. He expects the unemployment rate to rise to 8.8 percent by the end of 2009 and to average 8.2 percent for the year. Deflation will also occur. Gross domestic product will decline in the first two quarters before expansion resumes in the third quarter.
Paulsen blamed “fear mongering” by government officials to persuade Congress to pass the $700 billion Troubled Asset Relief Program in the fall for the depth of our problems today. That, he said, “froze everyone in their tracks” and resulted in “economic paralysis.”
Factors leading to recovery – and long-term issues it will create
Paulsen predicted confidence will begin to return in the first half of next year, helped by “the consumer who waited to buy a car and is definitely going to need one.”
Anderson said the U.S. government will provide the primary support for the economy in 2009. This will come in a stimulus package from the new administration with infrastructure spending and middle-class tax cuts, plus “natural stabilizers” such as unemployment benefits, food stamps and other welfare payments. The infrastructure spending will be too narrow to help everyone, he said – but the middle-class tax cuts will offer more sustained consumer spending than recent one-time stimulus checks. Savings rates may also rise to 5 percent.
The economists worried about the long-term effects of government spending, likely to result in tax increases and inflation. “The U.S. government has plenty of ‘cheap’ financing to help the economy forward,” Aleman said. “This is going to be very expensive and will require higher taxes in the future, but the alternative is even worse. For the foreseeable future, we can expect economic growth to remain anemic – or until markets forget about past mistakes and start building the structure for the next big bubble.”
America is f****d. Obama's hope and change credit card stimulus will come up snake eyes because China and India and other countries can no longer afford to give us stuff on credit!
There's No Pain-Free Cure for Recession: Peter Schiff's Editorial in The Wall Street Journal
As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.
With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.
Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.
Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.
On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.
It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.
I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.
As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.
Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.
Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.
If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?
By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.
The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.
With attention turning to the next big economic stimulus package, questions are still swirling about our economic troubles. How did we get here? How do we get out? As usual, Washington has all the wrong answers. According to many politicians, we got here by not spending enough, not consuming enough, and not regulating enough. Now government, like some mythical white knight, is going to ride in to save the day by blanketing the economy with dollars, hiring an army of new bureaucrats, creating make-work jobs, and sending everyone some form of a bailout check. The debate seems to focus on whether this will cost enough to save the economy, or if this is just a "down payment" with much more government spending to come. Talk like that would be comical, if the results weren't going to be so tragic.
The results will be worsening economic woes until we learn our lesson. But instead Congress is behaving like drug addicts who must hit rock bottom before they are ready to face reality. They are playing foolish games with the economy now because they are thinking only of political expedience. This talk of job creation is a perfect example.
Contrary to the belief of many, the goal of the economy is not job creation. Jobs can be a sign of a healthy economy, as a high energy level can be a sign of a healthy body. But just as unhealthy substances can artificially give the addict that burst of energy that has nothing to do with health, artificially created jobs just exacerbate our problems. The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A "job" could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive. Some think this round-robin type of economic model is supposed to get us somewhere.
Politicians and bureaucrats have already done their fair share to ensure that jobs in the private sector are prohibitively complicated and expensive to create. They are now shocked that the economy is shedding jobs, and want to simply create hundreds of thousands of jobs to make up for the job losses, through another so-called economic stimulus package. The private sector must be permitted to do that, but instead they are massively burdened with taxes and webs of red tape and regulation. Washington's bandaids will only prolong this agony. The Austrian school of economics teaches that only a free market economy, unencumbered by onerous government controls, creates long-term prosperity. Politicians, however, tend to be notoriously short-sighted.
I am left with these questions - who is going to be left standing to tax in the private sector to pay for all these public sector make-work jobs? Is Washington really to be considered some sort of savior for creating unproductive jobs in place of the productive jobs they eliminated?
We are at an economic dead-end and those in power are in denial. The truth is our economic problems are due to loose monetary policy, central economic planning, and the parasitic expenses of government. Unless we assess these problems honestly, we unfortunately have a long way to go until, like the junkie, we hit rock bottom.
WASHINGTON – Barack Obama and his congressional allies are gambling that the largest public spending program since World War II and a new round of tax cuts will pry the economy from the recession's iron grip and avert another Depression.
But what if they're wrong?
Some conservative economists say that additional stimulus may only prolong the grief at best, triggering runaway inflation down the road and resulting in an even more bloated federal bureaucracy.
"I think the economy will recover regardless of what Washington does. But the long-term effect here will be to reduce the standard of living of the next generation because they will be saddled with all this debt," said Chris Edwards of the libertarian-leaning Cato Institute.
Even without the new spending proposed by Obama, the U.S. has a $1.2 trillion budget deficit this year, he noted. "If that isn't already enough of a Keynesian stimulus, what is?"
Early 20th-century British economist John Maynard Keynes argued that the government should intervene to avoid depressions by increasing its own spending and controlling interest rates. President Franklin D. Roosevelt based many of his New Deal spending initiatives on Keynesian theory.
But not all economists and politicians subscribe to that world view.
While there is broad support for some kind of major stimulus, the skeptics offer this as Exhibit A: The trillions hurled at the problem last year by Congress, the Bush administration and the Federal Reserve have yet to yield many tangible results.
Unemployment continues to climb, reaching a 16-year high of 7.2 percent in December and is expected to keep on rising through 2009. U.S. manufacturing remains in a serious slump. The decline in consumer spending in late 2008 is expected to continue.
Home values keep eroding. For many people, loans are hard or impossible to obtain. Millions of retirement accounts have been slammed by sharp stock market losses. Financial collapses, bailouts, rescue plans, foreclosures and profit reversals litter the landscape.
"What in September began as an emergency response to stabilize our financial markets has morphed before our very eyes into a string of taxpayer funded bailouts," said Rep. Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee. "Trillions of dollars in taxpayer backed guarantees and loans have been extended."
In short order last week, Congress cleared the way for a new $350 billion installment of bailout cash for the financial industry while House Democrats rolled out details of a $825 billion two-year stimulus package incorporating most of Obama's priorities. About one-third of it would go to tax breaks, with the rest to government spending. The plan could reach $1 trillion by the time Congress sends it to Obama's desk.
Allen Sinai, president of Decision Economics, a Boston-area financial consulting firm, said that even with Obama's aggressive spending program, the economy seems unlikely to show a true recovery this year in terms of sustainable gains by consumers and businesses.
"There are forces going on that are 1930s-like," Sinai said. "There is incredible asset deflation, a huge loss in wealth by households. In the '30s, even when funds became available from the financial system to borrow, the pessimism by consumers and businesses was so great that no one wanted to spend." Sinai wouldn't rule out a repeat of that mind-set.
Some economists who are not fans of Keynesian economics or stimulus packages argue that FDR's vaunted New Deal programs, highly touted today as a model for job creation, did little to spur a U.S. recovery.
"It was finally World War II that finally ended the Great Depression," said Bruce Bartlett, a White House economist in the Reagan administration and a top Treasury official in the first Bush administration. Bartlett is author of a study showing that nearly all postwar stimulus packages passed by Congress came too late to be of much help, and just increased the deficit and fueled inflation.
Obama shrugs off expressions of skepticism and casts his stimulus package as the right formula for creating long-lasting, well-paying jobs, despite its big cost.
"It's not too late to change course — but only if we take dramatic action as soon as possible," Obama said in Ohio on Friday just days before taking office.
Mark Zandi, chief economist of Moody's Economy.com, said the economy could stabilize by year's end under a big stimulus package, government steps to reduce the number of foreclosures and continued monetary easing by the Fed.
"But many things could go wrong," Zandi added. "The financial system is still obviously under extreme pressure. It's not hard to paint a dark picture. Global investors could panic and stop buying the bonds we issue and send interest rates higher. Oil prices could spike again for whatever reason. It's not hard at all to be pessimistic."
A: It includes Obama's signature "Making Work Pay" tax credit for 95 percent of workers, though negotiators agreed to trim the credit to $400 a year instead of $500 — or $800 for married couples, cut from Obama's original proposal of $1,000. It would begin showing up in most workers' paychecks in June as an extra $13 a week in take-home pay, falling to about $8 a week next January.
$13 a week hells bells not even enough for a $20 rock??? that's gotta be disappointing. but hey the economy should take off now right after they get this fixed.
Pelosi's mouse slated for $30M slice of cheese
Talk about a pet project. A tiny mouse with the longtime backing of a political giant may soon reap the benefits of the economic-stimulus package.
Lawmakers and administration officials divulged Wednesday that the $789 billion economic stimulus bill being finalized behind closed doors in Congress includes $30 million for wetlands restoration that the Obama administration intends to spend in the San Francisco Bay Area to protect, among other things, the endangered salt marsh harvest mouse.
House Speaker Nancy Pelosi represents the city of San Francisco and has previously championed preserving the mouse's habitat in the Bay Area
_________________ "If you like your current healthcare you can keep it, Period"!!
Barack Hussein Obama--- multiple times.
Thu Feb 12, 2009 8:55 am
andi03 F L I N T O I D
Title of the thread: Depression to end in Second Half of 2009
Whose depression? My depression from listening to this news?
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