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An overview of
several points of view. Here’s hoping
the optimists are right, but I don’t have confidence that the Bush
administration is guiding the ship of state well, and unfortunately, most
Americans feel the same way. kwc Forecasters thinking recession could be coming WASHINGTON - Economic
forecasters and Wall Street analysts are quietly hedging their bets after
months of rosy reports about a vibrant U.S. economic outlook. They're now
mentioning the growing possibility of recession ahead. Why? Soaring gasoline
prices, nightmarish home-heating costs this winter, plunging consumer
confidence, rising interest rates and falling new-home sales. Similar energy-price spikes,
rising interest rates and housing slowdowns played important roles in past
recessions. While most forecasters caution that recession remains unlikely,
they nevertheless are dusting off the R-word, which almost all of them brushed
aside before hurricanes Katrina and Rita. "People are
starting to hedge bets. Obviously it's an uncertain time," said Jay Bryson, global economist for Wachovia,
the big bank based in Charlotte, N.C. Ed
Yardeni,
a veteran Wall Street seer who's now with Oak Associates Ltd., rose to
prominence in years past largely on bullish forecasts, but since Rita hit, he
sounds decidedly bearish. "The U.S. economy
has been remarkably resilient in recent years, but consumers may start to
postpone discretionary spending to build some cushion to pay their higher
heating bills on top of paying more to fill up their gasoline tanks," he
wrote to investors this week. "In other words, I am not sure that the
economy is resilient enough to withstand the one-two punches from the Katrina/Rita
tag team." Yardeni said it was
"increasingly likely" that the U.S. economy soon could face a
six-month bout of stagflation - in which prices rise but wages and hiring
stagnate - the economic curse of the 1970s. Much gloomier is Philip Verleger, a veteran energy analyst
at the Institute for International Economics, a nonpartisan research center. He
predicted today's energy crunch more than three years ago, and now sees an
economy saddled with dangerous parallels to President Lyndon B. Johnson's in
the mid-1960s. LBJ launched his
ambitious Great Society domestic-spending program while fighting a costly war
in Vietnam. The economy couldn't underwrite it all, leading to tax hikes, price
spikes and a 15-year battle to control inflation. Today's parallel is costly wars
in Iraq and Afghanistan, the rebuilding of the Gulf Coast and soaring federal
deficits. "This is the setup for 1966, 1967, 1968,"
Verleger said, pointing to pledges by the president and lawmakers to spend
whatever it costs to rebuild the Gulf Coast. "If Congress goes ahead and spends another $200 billion and doesn't pay
for it, it's just what LBJ did." Economist Nigel Gault, with Global Insight Inc., in
Boston, expects a slowdown, but only a short one - probably. "The reason
it (recession) gets mentioned ... (energy price) movements of this sort of
magnitude usually would be associated with recession. So you do have to start
asking the question," Gault said. "The question needs to be asked,
even if we think things are different on this occasion." There also are some
reasons for optimism, however. Rebuilding after the
hurricanes will spur spending and growth. America remains the global investment
zone of choice, as Europe and Japan remain sluggish. Long-range interest rates
so far have refused to follow the Fed's effort to head off inflation by raising
short-term rates 11 straight times, and those low long rates so far are
sustaining investment. Ben
Bernanke,
the head of President Bush's Council of Economic Advisers, argued in a speech
Tuesday that the U.S. economy remains resilient. "It recovered vigorously
from the severe shocks it experienced between 2000 and 2003, and I believe that
it will sustain growth in the face of the new challenges brought by the two
hurricanes and high energy prices," he said. The Commerce Department reported Wednesday that
orders of durable goods - big-ticket items built to last more than three years
- grew by 3.3 percent in August. Wachovia's Bryson puts
the chance of outright recession, defined as two successive quarters of
negative growth, at only 25 to 30 percent, but offered this caution: "I
would agree that the risk of recession is greater today than it was a month
ago. I can certainly think of how we can get to recession." Consumer behavior
-which drives about two-thirds of U.S. economic activity - is the key. On
Tuesday, consumer confidence posted its biggest plunge in 15 years, according
to a survey by the Conference Board,
a New York-based business-research center. Executives at Wal-Mart, the country's biggest retailer,
are warning of weaker sales ahead as high gasoline and home-heating prices eat
their customers' cash. This week, the
government reported that housing starts fell in August, and July starts were
revised downward. Stephen Roach,
the chief economist for Morgan Stanley, the giant investment bank in New York,
warns that America is a "shoestring economy," kept afloat only by
reckless borrowing by consumers and the government alike. He thinks a slowdown
in home sales will expose how much economic growth has been fueled by risky
borrowing against home equity. Federal Reserve
Chairman Alan Greenspan tried
again Tuesday to slow the housing boom before it bursts with sharp price drops.
He warned that overconfident lenders have made too many risky home loans. "History
cautions that extended periods of low concern about credit risk have invariably
been followed by reversal, with an attendant fall in the prices of risky
assets," Greenspan said. Many homeowners are
betting that their homes will appreciate enough to offset their growing
personal debt. Should the economy slow down and home sales drop sharply, these
homeowners and their mortgage lenders face financial ruin. http://www.realcities.com/mld/krwashington/12765580.htm |
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