Economic outlook
If you're waiting for a miraculous economic recovery don't hold your breath. I think we are seeing the economy contract after 15 years of false prosperity. Spending next year could cause the economic downturn to level out and perhaps even put us on the road to positive growth. But things are not going to get back to where they were for a long time. In some ways, that is probably a good thing, too.
Since the adoption of the laws in 1994 causing the lending industry to lower its stanards for issuing mortgages, I think the economy has grown at a rate faster than it should have grown. This has not entirely been due to the mortgage situation. Recall that we had the "Dot Com" bubble in the late '90s. We also had major companies falsifying their financial records - remember Enron, MCI, Adelphia Cable to name a few - to create significantly higher stock prices. All of this translated into higher salaries, bonuses, and wealth for many people.
After the dot com bubble burst and also September 11, there was a short period of retraction followed by increased government spending, lower taxes, the creation of new investment vehicles, and further relaxed lending practices. The economy again revved up at a false rate.
Throughout all of these 15 years, too many Americans borrowed significantly more than they should have in order to buy commodities -- things like bigger TVs and other toys and baubles.
Horrible financial practices by individuals supported by lending policies that encouraged this behavior and all of it was resting on the unsturdy platform of home values that were inflated by artificial demand and the availability of cheap money.
Ironically, President-elect Obama's plan to revive the economy is for the Government to follow the same practices that got us into this mess. Spend massive amounts of money that it does not have (which means borrowing beyond its means) and making money freely available for lending. This may prove successful in preventing further retraction in the economy and it may create some growth. But if I am right about the economy before this year, then Obama's plans may only put us back at a normal level of growth but will not achieve the artificially high levels of growth.
That means some jobs won't be coming back soon. That means some wealth will not be coming back soon (e.g. the stock market is not going to jump up 4000 points as fast as it lost it).
It also means, thank goodness, that credit will not be as freely available. People will have to, heaven forbid, save money to buy things.
Regrettably, there are still some tough times ahead for people. The key is bringing back the country and the economy in an intelligent and sound manner. I have some thoughts on what could be done to help turn things around --ideas other than just spending billions of dollars. I'll post these later.
Since the adoption of the laws in 1994 causing the lending industry to lower its stanards for issuing mortgages, I think the economy has grown at a rate faster than it should have grown. This has not entirely been due to the mortgage situation. Recall that we had the "Dot Com" bubble in the late '90s. We also had major companies falsifying their financial records - remember Enron, MCI, Adelphia Cable to name a few - to create significantly higher stock prices. All of this translated into higher salaries, bonuses, and wealth for many people.
After the dot com bubble burst and also September 11, there was a short period of retraction followed by increased government spending, lower taxes, the creation of new investment vehicles, and further relaxed lending practices. The economy again revved up at a false rate.
Throughout all of these 15 years, too many Americans borrowed significantly more than they should have in order to buy commodities -- things like bigger TVs and other toys and baubles.
Horrible financial practices by individuals supported by lending policies that encouraged this behavior and all of it was resting on the unsturdy platform of home values that were inflated by artificial demand and the availability of cheap money.
Ironically, President-elect Obama's plan to revive the economy is for the Government to follow the same practices that got us into this mess. Spend massive amounts of money that it does not have (which means borrowing beyond its means) and making money freely available for lending. This may prove successful in preventing further retraction in the economy and it may create some growth. But if I am right about the economy before this year, then Obama's plans may only put us back at a normal level of growth but will not achieve the artificially high levels of growth.
That means some jobs won't be coming back soon. That means some wealth will not be coming back soon (e.g. the stock market is not going to jump up 4000 points as fast as it lost it).
It also means, thank goodness, that credit will not be as freely available. People will have to, heaven forbid, save money to buy things.
Regrettably, there are still some tough times ahead for people. The key is bringing back the country and the economy in an intelligent and sound manner. I have some thoughts on what could be done to help turn things around --ideas other than just spending billions of dollars. I'll post these later.
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