Monday, November 23, 2009

Economist Insanity?

The National Association of Business Economists predicts some good things for the U.S. economy in 2010.

"The latest survey by NABE notes that sluggish consumer spending will continue to weigh on the economy. But it predicts rebounds in housing, growth from business spending as more companies restock lean inventories, and a rise in stock prices."

To me, it seems the height of insanity to believe that housing will rebound in 2010. The federal homebuyer tax credits will expire next year, interest rates can only go up, people without jobs don't tend to buy houses, and the number of foreclosures is not likely to stop increasing anytime soon. I suppose it is possible that the nominal value of housing will increase IF inflation starts to take off. In the absence of a more general inflation, as a consequence of current Fed policy, I don't see how housing prices will go up all that much if at all.

I can see how restocking lean inventories makes sense. Although some of that may already be happening. I wouldn't expect a massive increase in business spending.

Finally, I can't see how stock prices will continue to rise. The Dow Jones Ind Average is already at 10,500 and I think it's been over-valued for a long time. How much does NABE expect this to rise? Are we going to 12,000! I have admittedly been wrong, and mystified frankly, by how it has persisted at the plus-10,000 number for this long. Nonetheless, it makes no sense to think the stock market is going to rise significantly.

All in all, I understand the models these people use to make these forecasts. I just think they're insane in using them to predict things that make little intuitive sense. Maybe once the "stimulus" money runs out and the Fed stops the magic tricks with the money supply will see a massive wave of new optimism in the economy. Despite the fact that employers will have significant increases in their operating expenses due to new taxes in a variety of areas. How did that Saturday night vote in the Senate go?

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