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Even With Bailout, Talk Of Additional Intervention

Well, it’s official. The U.S. government bailout of Wall Street and the financial system is now law. From the Wall Street Journal’s Greg Hitt and Deborah Solomon today:

President George W. Bush signed into law an unprecedented $700 billion plan to rescue the U.S. financial system, one of the largest-ever government interventions in the nation’s economy — and almost certainly not the last.

The Treasury Department is expected to move quickly to start buying distressed assets from struggling financial institutions, although any impact might not be felt for some weeks. Many details — such as who will administer the program and how — are still to be worked out.

Even with the massive bailout, there is already talk of additional government intervention. Hitt and Solomon wrote:

It will likely be followed by other moves. The Federal Reserve could cut interest rates and take further steps to ensure there are enough funds coursing through the financial system. Congress has already beefed up jobless benefits and is expected next year to push for new stimulus efforts, such as spending on infrastructure.

Looking to next year, Democratic lawmakers are planning to revamp financial-system regulations, with hedge funds, private-equity funds and investment banks all likely to come in for tighter scrutiny. House Speaker Nancy Pelosi (D, Calif.) portrayed the legislation as “only the beginning” of the legislative response to the faltering economy…

“We will be back next year to do some serious surgery,” said House Financial Services Chairman Barney Frank (D., Mass.). Mr. Frank wants legislation to rewrite housing finance — including the roles of mortgage giants Fannie Mae and Freddie Mac – and overhaul regulation of financial services.

More intervention? Can’t wait…

Call me skeptical, but Congress has a habit of rendering things F.U.B.A.R. Speaker Pelosi may
want to pay heed to something one of her predecessors said many years ago:

One of the greatest delusions in the world is the hope that the evils in this world are to be cured by legislation.

-Thomas Reed, Speaker of the House of Representatives (1886)

Sources:

“Historic Bailout Passes As Economy Slips Further”
Greg Hitt, Deborah Solomon
Wall Street Journal, October 3, 2008

Second Stimulus Package Taking Shape?

Had an idea this would be a hot topic after the carnage on Wall Street today. CNN Money’s Corey Boles and Michael R. Crittenden wrote this evening:

Sens. Carl Levin, D-Mich., and Sherrod Brown, D-Ohio, said that the federal government needs to step in and help people on Main Street, urging Republicans on Capitol Hill and the White House to work with the Democratic majority in Congress to finalize an economic assistance package.

“The uncertainty about the future of the market underpins the need for another economic stimulus package,” said Levin…

Levin and Brown were speaking on a media conference call Tuesday morning.

Meanwhile, Senate Majority Leader Harry Reid, D-Nev., called on Republican presidential candidate Sen. John McCain, R-Ariz., to work to pass a second stimulus package…

House Majority Leader Steny Hoyer, D-Md., said the news from Wall Street underscored the need for another stimulus package, and said he hoped to bring a recovery plan to the House floor soon.

Speaker of the House Nancy Pelosi, D-Calif., said she hoped the Bush administration would come to the table to talk with Democrats.

Brown said elements of a stimulus package needed to include an extension of unemployment insurance benefits, spending to repair the country’s infrastructure, an increase in grants to states to help them pay for rising Medicaid costs, and an extension of tax credits for companies investing in research and development, and renewable energy sources.

According to CNN Money’s Boles and Crittenden, another goal of a second stimulus package could be to rescue the battered U.S. housing market. They wrote:

Democratic aides in the Senate said that lawmakers could attempt to do more with part of a second stimulus bill to bolster the housing market, which is at the root of the problems affecting banks like Lehman Brothers and Merrill Lynch due to their exposures to the subprime mortgage market.

The aides said that discussions were beginning Monday as to what that assistance could be, and that details weren’t available yet.

Boles and Crittenden also noted there are some who would like to see any housing initiatives include a halt to foreclosures. From the CNN Money piece:

John Sweeney, president of the AFL-CIO, the largest group of U.S. labor unions, renewed his call for a government-imposed moratorium on home foreclosures to allow the problems in the housing market to settle down.

Source:

“3rd UPDATE:Market Woes Reinforce Need For Stimulus -US Dem Sens”
Corey Boles and Michael R. Crittenden
CNN Money, September 15, 2008

Second Stimulus Package Update

Seems like there’s been a lot of interest lately in a second stimulus package to get the U.S. economy back on its feet. On July 15, I talked about how House Speaker Nancy Pelosi met with several economists and announced afterwards that:

We will be proceeding with another stimulus package.

On July 22, Reuters reported:

The U.S. Congress is discussing a second economic stimulus bill that could include nearly $15 billion in infrastructure spending, a senior member of the House of Representatives told Reuters on Tuesday.

Rep. James Oberstar, a Minnesota Democrat who chairs the Transportation and Infrastructure Committee, said a stimulus package could include “accelerating” pay-outs of $9.5 billion from the federal trust fund dedicated to road construction and maintenance…

The money would go to funding more than 2,600 projects, he said. States would receive full federal funding and then have a few years to pay back any matching funds.

Richard Cowan, John Crawley, and Lisa Lambert noted:

Congressional aides have discussed infrastructure elements to the plan, but have not provided cost estimates or other details. The timing of any second stimulus bill remains up in the air.

The Senate Appropriations Committee on Tuesday postponed consideration of its version of a second stimulus plan until September, said Robert Byrd, the panel’s chairman and a West Virginia Democrat.

President George W. Bush has indicated he wants to see how effective the first stimulus package is before looking at another one.

The idea of a second stimulus package hasn’t been lost on U.S. presidential candidate Barack Obama. According to the Star Tribune of Minneapolis-St. Paul yesterday:

Back from a nine-day overseas trip, Sen. Barack Obama made a point of turning to domestic concerns, calling a meeting Monday to solicit advice on reviving the economy and lifting wages.

Obama’s 2 1/2-hour economic forum, which was closed to the media, included some of the top economic policymakers of recent Democratic and Republican administrations. Among them were Robert Rubin and Paul O’Neill, Treasury secretaries in the administrations of Presidents Bill Clinton and George W. Bush. Billionaire investor Warren Buffett took part by phone.

Obama said the economy needs short- and long-term fixes, including another “stimulus” from Congress…

The group agreed with Obama’s call for a second stimulus plan, although there was some debate about the size.

Obama wants to inject another $50 billion into the economy. Laura Tyson, who headed Clinton’s Council of Economic Advisers, said, “There were people in the room who felt it should be more.”

Sources:

“Infrastructure could spur new stimulus: Rep”
Richard Cowan, John Crawley, and Lisa Lambert
Reuters, July 22, 2008

“Obama gains support from economic team for a second economic stimulus plan”
Star Tribune, July 29, 2008

Quote For The Week

When I was down at the University of Illinois at Urbana-Champaign in the early nineties, I used to read the The Onion, a fake newspaper chock full of satirical articles, every once in a while. Apparently, the publication’s still going strong. From their July 14 issue:

Congress is currently considering an emergency economic-stimulus measure, tentatively called the Bubble Act, which would order the Federal Reserve to begin encouraging massive private investment in some fantastical financial scheme in order to get the nation’s false economy back on track.

Current bubbles being considered include the handheld electronics bubble, the undersea-mining-rights bubble, and the decorative office-plant bubble. Additional options include speculative trading in fairy dust—which lobbyists point out has the advantage of being an entirely imaginary commodity to begin with—and a bubble based around a hypothetical, to-be-determined product called “widgets.”

The most support thus far has gone toward the so-called paper bubble. In this appealing scenario, various privately issued pieces of paper, backed by government tax incentives but entirely worthless, would temporarily be given grossly inflated artificial values and sold to unsuspecting stockholders by greedy and unscrupulous entrepreneurs.

“Little pieces of paper are the next big thing,” speculator Joanna Nadir, of Falls Church, VA said. “Just keep telling yourself that. If enough people can be talked into thinking it’s legitimate, it will become temporarily true.”

Why is there a lurking suspicion that this story might not be so fake after all?

Crash Prophet Gary Shilling Predicts Nosedive In Consumer Spending

Back on June 13, 2007, I wrote a post entitled “Crash Prophets” and spoke of economist/investment advisor Gary Shilling. Dr. Shilling, who was twice ranked as “Wall Street’s top economist” by polls conducted by Institutional Investor magazine, said last summer that the United States was fast approaching a financial storm. From that post:

He notes, “An unusual confluence of five forces in recent years created a virtual world of financial speculation that departed spectacularly from the real economic world, the ‘grand disconnect’ we’ve called it.” The five forces… are:

1. Global liquidity.
2. Investors’ misguided belief in “20% annual returns each and every year.”
3. Risk desensitization due to recent low volatility and the belief the Fed will “bail them out.”
4. Rampant, aggressive speculation.
5. American consumer spending, highlighted by instant gratification and the inability to save.

And what will trigger the meltdown? According to Farrell, Shilling still sees the subprime debacle as the catalyst.

A year later, and the “crash prophet” is providing his latest financial storm forecast. Yesterday, the president of A. Gary Shilling & Co was the subject of a Newsmax.com piece. According to the Internet news site:

The U.S. is already in a recession that’s unfolding in four stages — and it’s going to get a lot worse, investment advisor Gary Shilling says.

“We’re between the second and third stages right now,” Shilling told a Bloomberg interviewer.

“The first phase was the collapse in housing market, led by subprime slide last year; the second phase was Wall Street, where there was a tremendous amount of over-leverage and investment in assets of questionable if not unknown value and highly illiquid.”

Shilling believes the third phase — a big nosedive in consumer spending — is about to unfold.

Yesterday, Bloomberg reported that prices paid by U.S. consumers jumped in June by the most since 2005 on spiraling costs for fuel and food. The cost of living soared 1.1% after a 0.6% gain the prior month, the Labor Department said. Fed Chairman Ben Bernanke, testifying before Congress Wednesday as part of his semi-annual report on the U.S. economy, warned that consumer spending is “likely to be restrained over coming quarters,” and businesses are “likely to be cautious with their spending in the second half of the year.”

Dr. Shilling told Newsmax:

Once people work through their tax rebates, they’ve run out of borrowing power. Their home equity has disappeared. They’ve been relying on that and on income growth that isn’t happening. With high energy bills and maxed out credit cards, I think consumers are about to go off the cliff….

I look for the biggest decline in consumer spending since the 1930s.

Next up? Phase four, where recession spreads throughout the world.

Oh joy…

Sources:

“Gary Schilling: U.S. In Recession Now”
Newsmax.com, July 16, 2008

“U.S. Consumer Prices Climb by the Most Since 2005 (Update1)”
Shobhana Chandra
Bloomberg, July 16, 2008

Merrill Lynch Economist Warns Of Multiple U.S. Recessions

According to the Financial Post (Canada) from July 9, David Rosenberg, the chief North American economist at Merrill Lynch, is warning of the possibility of not one U.S. economic recession, but a series of them. The Post’s Jacqueline Thorpe wrote:

Rosenberg has consistently held one of the more pessimistic views on Wall Street, arguing the housing slump and credit crunch will exact a heavy toll on U.S. consumer spending. He believes the data will eventually show the recession started in January.

But he adds it’s not the peak-to-trough decline in real GDP that’s important but the duration. Trouble is, the duration could be Japanese-like (about a decade).

Just like Japan, he says a series of rolling recessions is possible for the next three to five years, making it extremely difficult to time the market. Japanese equities got trashed through the process. At the 1998 post-bubble lows, Japanese bank, construction, real estate and transport stocks were all down 80%, retail stocks were down 50%. The only place to hide was bonds, notes the bond bull.

Rosenberg told the Canadian publication:

We are nervous that we have ended up following in Japan’s footsteps due to the inept fiscal response to the problem. A temporary tax rebate from Uncle Sam to buy iPods tackles a real estate deflation and credit crunch as effectively as the LDP’s (Liberal Democratic Party) “solution” in the early 1990s to build bridges and pave river beds that nobody needed.

The Vapours, “Turning Japanese” (1980)
YouTube Video Link

Source:

“Rosenberg on strike, fed up trying to pinpoint U.S. recession”
Jacqueline Thorpe
Financial Post (Canada), July 9, 2008

House Speaker Pelosi Announces Second Stimulus Package

Looks like another stimulus check may soon be on its way to American households. According to Reuters today, House Speaker Nancy Pelosi met with several economists Tuesday and announced afterwards:

We will be proceeding with another stimulus package.

Reuters’ Andrew Taylor wrote:

Pelosi said that recently issued tax rebate payments of $600 to individuals and $1,200 for married couples have helped the economy but that more is necessary to offset the drag of higher gasoline prices and other costs…

The Democratic effort is still in its formative stages, but most of the proposals mentioned by Democrats were rejected by Bush during negotiations that produced the earlier stimulus measure. A new package probably won’t be acted on before Congress returns in September from its annual summer vacation.

According to Taylor, this second stimulus package could consist of additional tax rebates, heating and air conditioning subsidies for the poor, infrastructure projects, higher food stamp payments, and aid to the states.

Speaking of seconds, back on April 29 I talked about humor columnist Dave Barry, who published the following in the Miami Herald on April 13 in response to the first stimulus package:

…this year, filing taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.
Q. Where will the government get this money?
A. From taxpayers.
Q. So the government is giving me back my own money?
A. Only a smidgen.
Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
Q. But isn’t that stimulating the economy of China?
A. Shut up.

Source:

“Democrats plan second economic stimulus bill”
Andrew Taylor
Associated Press, July 15, 2008

Peter Schiff TV Appearances

Peter Schiff, author of the book Crash Proof: How to Profit from the Coming Economic Collapse, appeared on FOX News Saturday morning and CNBC Tuesday morning. Schiff told viewers of “Fox Bulls & Bears” that the downturn in the U.S. economy goes beyond a “slowdown.” He warned:

We’re already in a severe recession, and it’s going to get a lot worse.

Commenting on the poor performance of the U.S. stock market lately, the president of Connecticut-based Euro Pacific Capital said:

This is a bear market. We’ve been in a bear market since 2000. The market’s going a lot lower, not only in nominal terms, but in real terms.

Later on in the show, Schiff gave a timeframe for how long he thought the bear market would last. He told viewers:

We are in a secular bear market. It’s been going on for 8 years. It’s going to go on for another 5 to 10 years.

As to where investors may want to look at putting their money, the host of the weekly radio program “Wall Street Unspun” said:

It’s [oil] probably going up to $150…

And, you know, trying to catch a falling knife in the financials? They have a long way to go down. I wouldn’t touch them…

Look at gold. You want to see a good chart, look at commodities. Look at foreign currencies.

At the conclusion of the show, Schiff predicted:

Well, this week Bernanke said the economy was going to improve and inflation was going to moderate. He was wrong on both counts. The economy is going to get a lot worse. Inflation is going to get worse. And you’ve got to get out of the dollar. It’s going to fall at least another 10%.

FOX News Appearance
YouTube Video Link

On Tuesday morning, Peter Schiff appeared on CNBC’s “Squawk Box,” and responded when asked who was responsible for the financial mess the United States has found itself in by saying:

Well, first of all, it’s the government, and when I say the government, I also mean the Federal Reserve, that has artificially kept interest rates much too low in this country, and in so doing, they’ve encouraged a culture of consumption, of borrowing to buy things. In America, we borrow to buy houses, to buy cars, to send our kids to school, to remodel our houses, to take vacations. And what we’re seeing right now is the fact that we can’t pay any of this money back. And the lenders are cutting us off, and this whole bubble economy that we have is now deflating. But it never would have existed if we had honest money. If we were on a gold standard and we had higher interest rates, we would have been saving, we would have been producing, and we wouldn’t be in this mess.

Schiff shared his views about how to avoid a financial armageddon. He said:

We need to raise interest rates dramatically. What’s that going to do? It’s probably going to bankrupt most of the financials. It’s going to bankrupt a lot companies. We’re going to have to go through a big retrenchment because we basically spent ourselves into bankruptcy. But we can’t keep trying to reflate the bubble. That’s what the Fed is doing. That’s what the stimulus is trying to do. They’re trying to get us to spend more money. That’s the problem. We’ve spent too much. So, we’re going to have to live through a severe recession. If we keep fighting it, all we’re going to have is higher inflation, higher oil prices, higher commodity prices, and eventually, we’re going to get something far worse than just a severe recession. We could have hyperinflation and a complete destruction of our currency.

You can access the 7 minute 16 second CNBC segment here.

Sources:

“Fox Bulls & Bears”
FOXNews, June 28, 2008

“Squawk Box”
CNBC, July 1, 2008

Talk Of Another Stimulus Package

Although only one-half of the tax “rebate” checks have been paid out, there is already talk of another “stimulus” package being required to jump-start the U.S. economy. Reuters’ Emily Kaiser wrote this afternoon:

Even as U.S. consumers raced to spend their tax rebate checks, economists and analysts at a Reuters summit this week said the effect on the economy may be so short-lived that another cash infusion will be needed.

Kaiser talked to economists Martin Feldstein and Roger Kubarych, and wrote:

Martin Feldstein, a Harvard University economics professor and head of the influential National Bureau of Economic Research in Cambridge, Massachusetts, said textbook economic theory holds that one-time tax rebates don’t work, but recent experience shows otherwise.

“For a lot of people, seeing the cash sends them right out to the store to spend it,” he said. “If the economy is weak a year from now, and this (first stimulus) seems to have worked, I think they ought to do it again.”

Kaiser also spoke to Roger Kubarych, the chief U.S. economist at The Unicredit Group, who said:

We’ve got quite a lot of fiscal kick for the second half but it has got a lot of work to do. I think that it allows maybe 2 percent, 2.5, 3 percent growth in the third quarter but by the end of the year it will be slack. And the next president will reconsider and maybe do another rebate program next year. The economy is not really strong enough without some fiscal kick, and the Fed is pretty much spent.

Despite such benefits, Kaiser warned, “Nothing is free, and the current package, worth $168 billion over two years, will add to an already daunting federal deficit.” In fact, the U.S. Treasury Department reported yesterday that the May deficit was more than double what it was in May 2007. According to the Associated Press on Wednesday, $48 billion in “stimulus” payments contributed to last month’s $165.9 billion deficit, the highest imbalance ever for May.

“She Wants My… Stimulus PACKAGE”
Warning: Somewhat Offensive Material
YouTube Video Link

Sources:

“Economy may need second dose of stimulus”
Emily Kaiser
Reuters, June 12, 2008

“Stimulus payments result in record May deficit”
Martin Crutsinger
Associated Press, June 11, 2008

Merrill Lynch, Morgan Stanley Issue Recession Warnings

At a conference yesterday in Singapore, New York City-based financial services giant Merrill Lynch warned the U.S. economy is in a recession that will become more apparent as the year drags on. According to Channel NewsAsia yesterday:

Merrill Lynch said the world’s largest economy is already in a recession, and it expects to see a prolonged L-shaped recovery. This means the US may take a longer time to emerge from the economic doldrums….

Merrill Lynch said a key indicator of a recession is a slump in the housing market. It added that it expects the housing market in the US will see another 15-20 percent downside.

Staff from the firm said that government efforts to provide stimulus to the economy will only temporarily stem a fall in consumer spending, according to Reuters’ Kevin Lim. Merrill Lynch’s North American economist David Rosenberg told conference attendees yesterday:

I still maintain the business cycle is bigger than the government.

Rosenberg also predicted inflation in the United States would slow as consumer spending weakens, and that the Federal Reserve would cut interest rates to fight the recession. The economist warned:

No asset class security is priced today for a recession scenario.

Adding their two cents, economists from Morgan Stanley are concerned that the recession in the United States could rival the “the big five,” according to David Gaffen from the Wall Street Journal’s Market Beat blog today. Gaffen explained the “big five” were large-scale financial crises that resulted in a long-term underperformance in the respective economies. He wrote:

The long-term declines the firm looks at includes Spain in 1977 and Norway in 1987, and most recently Japan in 1992 – which they define as the worst, resulting in Japan’s so-called lost decade. Whether the current U.S. economic decline matches one of these situations, or looks more like the recent U.S. recessions “holds the key for risky asset prices,” they write.

However, Morgan Stanley economists do not agree with their Merrill Lynch counterparts when it comes to the topic of inflation. From the Market Beat post:

Morgan Stanley economists say that in this instance, inflation may not automatically recede as U.S. growth recedes. They say as a result that bonds may sell off if growth recovers in the U.S. and monetary policy remains loose, fueling price gains… “We believe that the Fed’s focus on keeping the financial crisis from sending the economy down the path of the Big Five will succeed, but lower rates and surging money growth will spill over into inflation. Bond yields are likely to follow inflation higher,” they write.

Sources:

“Merill Lynch says US in recession, but Asia to remain strong on consumer spending”
Channel NewsAsia (Singapore), May 14, 2008

“Tax rebate won’t stem U.S. recession: Merrill”
Kevin Lim
Reuters, May 14, 2008

“Regular Recession, or a Larger Disaster?”
David Gaffen
Wall Street Journal (Market Beat blog), May 15, 2008

Bank Of Central Banks: Stagflation Risk For U.S. Economy

Malcolm Knight, the general manager of the Bank for International Settlements, told Reuters’ Brian Love last week that stagflation might occur in the United States, with weak economic growth lasting well into 2009, if not longer. According to Investopedia, stagflation is “a condition of slow economic growth and relatively high unemployment- a time of stagnation- accompanied by a rise in prices, or inflation.” The BIS is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks around the world, including the Federal Reserve. Established on May 17, 1930, it is the world’s oldest international financial organization.

Reuters’ European economic correspondent wrote:

“I see a certain amount of scope for stagflation in a number of economies and that usually tends to result in subpar economic growth performance for an extended period of time, which could go well into 2009 or even longer,” said Knight, a Canadian who worked for more than 20 years at the International Monetary Fund.

“I think the U.S. economy is likely to experience weakness this year and in much of 2009,” said Knight, speaking to Reuters at BIS headquarters in Basel, Switzerland.

“Stagflation is a definite risk.”

Love noted that Knight’s outlook contradicts the White House’s assertions that the U.S. economy will rebound later in the year as the result of economic stimulus initiatives.

Source:

“U.S. risks stagflation: BIS chief”
Brian Love
Reuters, April 29, 2008

Dave Barry On Economic ‘Stimulus’ Payments

Well, it looks like the first of the economic ‘stimulus’ payments are arriving in the mailbox (and being spent at the gas pump). The other day I noticed that Dave Barry had added his two cents on the tax rebate checks. For those of you who aren’t familiar with Dave Barry, he is a humor columnist whose work appeared in more than 500 newspapers in the United States and abroad for 25 years. In 1988, he even won the Pulitzer Prize for Commentary.

Barry wrote in the Miami Herald on April 13:

…this year, filing taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Source: Hong Kong Tourism Board

Source:

“Dave Barry: How your taxes turn into manure”
Dave Barry
Miami Herald, April 13, 2008

As If One ‘W’ Isn’t Enough

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.

The United States has been busy trying to fight off an economic slowdown. Reuters’ Surojit Gupta and Rajkumar Ray wrote yesterday:

To counter the problems faced by the world’s largest economy, the Federal Reserve has cut its benchmark interest rate by 300 basis points since September and is expected to cut the Fed funds rate further at its meeting next week.

It has also provided billion of dollars in liquid funds to near-frozen markets and stepped in to prevent the collapse of investment bank Bear Stearns.

Meanwhile, under a Federal Government fiscal stimulus program, 130 million Americans will receive tax rebates this year and in 2009.

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.

Challenging, indeed. Last week, the head of a U.S. business group warned the world’s largest economy may see a “double dip” recession if stimulus efforts by the Federal Reserve and U.S. government fail to take hold. According to the Agence France-Presse on April 17, Harold McGraw, the head of publishing giant McGraw-Hill and chairman of the Business Roundtable (which represents chief executive officers of leading American companies), said:

If, after the economic stimulus package takes effect and we get into (20)09, and the … lower interest rates do not kick in, there is a probability of (a) double-dip recession…

A growing number of economists and analysts fear that the U.S. economy might slip into a recession, then back again after a brief recovery, in a W-shaped “double-dip” recession.

Source: Children Of The World

The French news agency also reported that McGraw, who was in Tokyo for a one-day business summit with business leaders from the Group of Eight (G8) nations, warned that the credit crunch would continue until the end of this year. He said:

I think it will take the rest of this year to unwind but I think it will. It turned (out) to be bigger and broader and deeper than we thought.

Sources:

“Economy seen improving in second half of ‘08”
Surojit Gupta, Rajkumar Ray
Reuters, April 24, 2008

“US business leader warns of ‘double dip’ recession”
Agence France-Presse, April 17, 2008

Give Credit Where Credit Is Due, Mr. President

I caught the following from Reuters this morning:

The U.S. government has already taken “very effective” action to help boost the slumping U.S. economy, President George W. Bush said on Friday in a speech to a U.S. business group.

“We saw this coming … and so we took some action. And I do want to thank members of the Congress, members of the Chamber, for working on what I believe is going to be a very effective pro-growth stimulus package,” Bush said.

We saw this coming? Doubtful. Maybe a few people did in Washington, but certainly not the majority of economists, analysts, and other “experts” serving the White House in some official capacity. Unless, that is, they actually did sense danger, yet didn’t want to rock the boat. And who could blame them? After all, the White House has always been the economy’s biggest cheerleader.

It’s one thing to take actions in anticipation of an economic recession. It’s another to resort to a bailout (bailouts?) and other measures in hopes of thwarting a financial crisis, which is what we are seeing now. I don’t know about you, but I can’t remember the White House ever sounding the alarm for an economic crisis. Therefore, Mr. President, please give credit where credit is due. For years now, a number of individuals have warned that the United States was heading towards a major financial crisis. Looking at a bookshelf in my home office as I write this, I notice works by Eric Janszen, Michael Kosares, Michael Panzner, Robert Prechter, Jim Rogers, Peter Schiff, to name a few. And even while they presented their evidence and stated their case, few listened. Some ridiculed. And now, with the economic picture clearly worse, some are even taking credit for their foresight.

Source:

“Bush says U.S. has acted to boost economy”
Reuters, April 18, 2008