Economics / Economic Recovery
Jan 07, 2010 - 01:59 PM
By: Mike Whitney
There's no denying that the economy is getting better, but will it last? Many economists don't think so, including experts at opposite ends of the ideological spectrum, like Paul Krugman and Martin Feldstein.
They think the economy will begin to fizzle sometime in the latter part of 2010 when Obama's $787 billion fiscal stimulus runs out and consumers are forced to pick up the slack in demand.
That's a safe bet, too, considering that unemployment will still be somewhere in the neighborhood of 9 percent and households will still be digging out from the $13 trillion they lost during the crisis. And the fact that the Fed is planning to end its quantitative easing (QE) program in early April, doesn't help either.
That will just suck more liquidity out of the system and push long-term interest rates higher. When that happens, housing prices will fall, inventory will rise, and a surge in foreclosures will put more pressure on the banks balance sheets.
That's why the pros are so glum, because they know the economy needs a second dose of stimulus to stay on track, but the politicos are dead-set against it.
Congress is afraid of the backlash from voters in the upcoming midterm elections. They'd rather drive the economy back into recession then risk losing their jobs.
Despite the propaganda in the media, stimulus works. In fact, Goldman Sachs attributes all of last quarter's (positive) growth to Obama's stimulus. Here's how Nobel prize winning economist Joseph Stiglitz sums it up in his China Daily article "Harsh lessons we may need to learn again"
[snip]
The Illinois economy isn't shrinking quite as fast as it was a few months ago. I guess that means it is getting better..