Posted by Editor on October 22nd, 2008
Posted In:
Banking Crisis,
Corporate Earnings,
Crash Prophets,
Credit,
Economy,
Employment,
Financial Sector,
Hedge Funds,
Housing,
Recession,
Stimulus Package,
Stocks,
U.S. Government,
U.S. Treasury Dept.
Even as a financial storm continues to blow through the U.S. economy, some are trying to predict a turnaround. From Reuters this morning:
U.S. Treasury Undersecretary David McCormick said on Wednesday the U.S. economy is in for a challenging few quarters but could start to recover late next year.
“The coming quarters will be very challenging,” McCormick told a lunch in Hong Kong.
He said, however, that the U.S. economy was resilient despite challenges posed by turmoil in the financial sector.
“Our hope is that (the U.S. economy) will turn upward toward the end of 2009,” he said.
David McCormick. Hmmm. How do I know that name? Could this be the same David McCormick I talked about in an April 25 post, where I wrote:
Yesterday, a senior official in the U.S. Treasury Department said the U.S. economy could improve slightly in the second half of 2008, and that there are some encouraging signs in the credit markets. David McCormick, Under Secretary for International Affairs, said the improvement would be due to a fiscal stimulus of $150 billion, which would help create 500,000 new jobs this year…
Because of these measures, McCormick said:
We will begin to see a slight improvement in the back half of 2008 and obviously carry that momentum in 2009. But make no mistake, a very challenging time for the economy.
Ha! Let’s hope we don’t carry “that momentum” into 2009.
Even more optimistic than Mr. McCormick is the International Monetary Fund. According to an IMF report issued earlier today:
The International Monetary Fund on Wednesday issued a gloomy economic outlook for the United States and the Western Hemisphere, saying U.S. economic growth will be close to zero or even slightly negative for the rest of 2008 and the following few months.
In a new report that uses data from as recent as mid-October, the IMF projects economic recovery in the United States will not begin until the second half of 2009, and will be more gradual than previous recoveries because of the exceptional nature of the asset price adjustments taking place.
At odds with the Treasury Department and IMF is Nouriel Roubini, a former Treasury Department director in the Clinton administration and head of Roubini Global Economics in New York. Dr. Roubini, who predicted a lot of the current mess the U.S. financial system finds itself in, appeared on CNBC earlier today. From their website:
The US economy is entering a two-year recession that will be longer and deeper than previously feared, said Nouriel Roubini, a well-known economist and professor at New York University.
“I believe we’re going to have two years of negative economic growth,” Roubini said on CNBC. “The last two recessions lasted only eight months each … This time around this is going to be three times as long, three times as deep. This is going to be the worst recession the US has experienced since the 1980s.”
A slowdown in global economic growth combined with continued problems in credit markets and housing will haunt the economy, Roubini said.
In addition, he sees hundreds of hedge funds getting wiped out, combining with earnings to provide another weight on stocks. “I believe that the worst is still ahead of us. I think that the next few weeks and months are going to be negative surprises on the economy,” he said. “I think that overall the earnings are going to surprise to the downside.”
Dr. Roubini said there was one good thing about the massive government intervention we’ve been seeing, although the end result will still be a severe economic recession in the United States. From the CNBC piece:
The only good news is that systemic risk in the financial sector, or the idea that damage won’t be isolated to specific companies but rather will spread through the industry, has been reduced by government intervention, he said.
“But we’re going to have a severe recession. If this is going to be a two-year recession, that’s not priced by the market. And there are significant downside risks for the stock market and credit markets in my view,” he said. “Yes, we’re going to avoid the Great Depression, we’re going to avoid a 10-year stagnation. That’s not going to be the case.”
Let’s hope so.
Sources:
“Treasury Sees US Economic Recovery in Late 2009”
Reuters, October 22, 2008
“IMF: No U.S. growth til mid-2009”
CNN Money, October 22, 2008
“Recession Will Last At Least Two Years: Roubini”
CNBC, October 22, 2008
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