It's not all doom and gloomPresident-elect Barack Obama said it himself on Monday: the economy’s about to collapse and if Congress doesn’t act fast, it will.
By: Bonnie Erbe, The Dickinson Press
President-elect Barack Obama said it himself on Monday: the economy’s about to collapse and if Congress doesn’t act fast, it will. Everywhere one turns, lousy economic news abounds. Is it possible we’ve been through the worst and this year will be better than last? Not according to most of what we hear in the media. But the possibility exists despite the naysayers.
Yes, car sales are down. Yes, Wall Street’s in the pits. Job losses are dismal and mounting. What about the housing market? Let’s not even go there. But I believe several factors — low interest rates, relatively low energy costs and renewed taxpayer and consumer confidence in the incoming presidential administration — could help ignite at least moderate growth before 2009 winds up.
Jerome Idaszak, associate editor of The Kiplinger Letter, cites some additional reasons for measured optimism: “Inflation will also be low, in the 1 percent to 2 percent range for 2009, stretching paychecks for those who still have jobs. And federal spending will be a big help to the economy. President-elect Obama and Congress plan a stimulus of over $800 billion in tax cuts and spending as early as this month. If the money can be put to work quickly — a big if — it will create a few million jobs ...
“About 70 percent of Americans say they are optimistic that the Obama administration will be able to spur growth. Economists say confidence is a key element, especially as it relates to consumers. That’s a big plus if Obama can deliver quickly enough to keep the momentum.”
One bugaboo feared widely by economists is deflation: a series of price cuts throughout the economy that cause consumer prices to drop. We’ve already had huge drops in real estate prices since the end of the boom almost three years ago.
I believe moderate drops in consumer prices would be a good thing, not a problem. Food costs shot up dramatically when oil was going for more than $100 per barrel. And even though oil is now trading for less than half that, food price hikes blamed on higher transportation costs have yet to become evident. In other words, as a result of last year’s oil spike, all consumer goods rose in price. Now that oil is back down, retailers have yet to cut their prices accordingly.
In real estate, on the other hand, we have seen prices come back down, making housing more affordable for young Americans and first-time homebuyers. If consumer prices don’t come down before the economy picks up again, we could see dangerously high inflation.
Economists worry that deflation will bring consumer spending to a sudden halt. Consumers, they posit, will see price cuts coming and wait until they drop even lower to make big-ticket purchases. Too much deflation could send prices into a free fall. What they do not take into account when they make these projections is the amount of pent-up demand the already yearlong recession has created.
If we do see signs of a recovery this year, it won’t be early in the year. Even optimists look to the third and fourth quarters of 2009 before companies start enjoying profits again. And we optimists don’t expect anything like the profit margins witnessed from 2005-2008.
If one thinks about it, the last boom was a false boom. The run up in real estate values was based on unqualified home buyers securing home loans they could not afford.
Then Wall Street packaged those bad loans into empty derivatives. And credit card companies extended too much credit to too many non-creditworthy consumers. Then the flimsy Ponzi schemes collapsed and the rest, as they say, is history.
This year, we’d like to see the beginning of moderate, even slow, economic growth that rises at a sensible, sustainable rate. No more boom and bust periods, please. We’ve had enough.
— Erbe is a TV host and writes this column for the Scripps Howard News Service.