Tuesday, July 28, 2009

Some Cheerful Economic Predictions

It was announced that new home sales for June went up by 11%. Were it October, an 11% jump would be something. But May is a good time to do construction. Naturally, the media is excited regardless of the specifics.

My predictions, that I first made as early as January, are as follows:
1. Unemployment will reach 12% by the end of 2010. I made this prediction thinking that with a normal president a recovery would be well under way already. With Obama, we have massive debt spending and delayed fiscal lags with the slow flow of stimulus. The fact of fiscal lags and that this would happen is standard econ textbook 101. No surprise with how it's working. The only surprise was that the "Stimulus" was attempted in the first place given that we learned this long ago. With a normal president we would have seen unemployment top out about now. But this guy is going to easily cause another 3% to 4% more because of the small business taxes on all the greedy millionaires to pay for healthcare, cap and trade, and other assorted nonsense. He is creating uncertainty as well by politicizing things. Banks aren't lending, and they're smart to some extent not do so. They're now accountable not only to their shareholders but to their new TARP government masters. You can't take risks in that environment.

2. Interest rates will probably rise modestly but not dramatically. This is actually a pretty good outcome of a situation where nobody consumes all the liquidity the Fed has pumped into the economy. The scale of the money they've pumped in has been dramatic and yet still no effect. That itself is remarkable given the sheer scale of what they've done to essentially print money and give banks the opportunity to borrow at 0% from the Fed and at 1 to 2% to their depositors. And yet they're still not lending. Again, you can't take risks with the kids in control.

3. Inflation. Similar to interest rates. It will probably stay tame. That's my bet for the same basic reasons I mentioned before.

I think the stock market will start to tank. I have no explanation for why the Dow average is at 9,000. I am mystified by it. If it stays even above 8,000 by the end of this year, I will be shocked. I will confess to being way off if that happens. But the current stock market level makes no sense. Will wait and see.

I think Obama's healthcare is not going to pass in its current form. He needed to get it done because his poll numbers are tanking as more people realize how his policies are ridonkulous and cartoonish. "Go into debt to prop up the economy" is, with all due respect to Keynes and Paul Krugman (who I don't really respect), not really an answer. Once the August and September unemployment number come out and we see another million jobs lost and the rate goes up to around 10%, his poll numbers will go further south and it will be that much harder to pass this nonsense.

We will see what happens. I think most of my cheerful predictions are on target. I don't want them to be. But I didn't vote for Obama. If you did, be happy because this is what you voted for. I hope your job isn't the one that's lost because your rich boss has to layoff people. View it as an opportunity to learn something.

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