Robert Reich: My Recovery Prediction

[flpoljunkie]

(edited for copyright purposes-proud patriot Moderator Democratic Underground)

My Recovery Prediction

There's a reason it's called the "business cycle."

ROBERT B. REICH
March 25, 2009

I've got something of a reputation as an economic soothsayer. Last March I predicted the economy would slide off a cliff in six months. Six months later, it did. How did I know? I'll get to that later. Now, I'm predicting the economy will start to recover in the second quarter of next year.

First, look at the economic fundamentals -- such as historic ratios of home values to rents and incomes and of stock prices to corporate earnings. At the rate houses and stocks are now dropping, they'll be terrific bargains by the middle of next year. Meanwhile, given how fast business inventories are now dropping, firms will probably start rebuilding by then. Business investments in plants and equipment are now nearing a standstill, so by the third quarter of next year companies will need to replace lots of aging equipment. On the consumer side, the sharp falloff in spending on durables means lots of cars and appliances will begin wearing out by the middle of next year.

You get the point. There's a reason it's called the "business cycle." Contrary to Isaac Newton's law of gravity, what goes down eventually comes up. But how can I be so sure spending will pick up by the second quarter of next year? What if the outlook continues to be so grim that businesses and consumers delay new expenses and investments beyond the point they'd normally revive them? This is where the political cycle comes in. A president's party tends to lose seats in the first midterm elections, but Obama knows he can hold on to his majorities if he handles the economy well. Voters respond to economic trends more than to current levels -- to where the economy is heading rather than to where it is. Regardless of how the economy is doing in the months leading up to the midterm election in November 2010, voters will keep Democratic majorities in the House and Senate if they think the economy is on the mend.

That's why the $787 billion stimulus package was designed like a timed-release cold capsule. Stimulus spending will increase through to the end of 2009 and continue full blast in 2010. Although it's too small to restore the economy to full health by Election Day, the stimulus needs only to give the economy enough momentum by then to convince voters it's on the way to being restored.

http://prospect.org/cs/articles?article=my_recovery_predicition

[Loge23]

1. That'll make for another long winter

Frankly, I'm skeptical that many small companies (such as the one I work for) will survive another winter like this one just past.
I can't disagree with 2Q 2010, but that is so far away right now.

[Kurt_and_Hunter]

2. I'll assume Reich is wrong here because if this is true we should impeach everybody > > >

"That's why the $787 billion stimulus package was designed like a timed-release cold capsule. Stimulus spending will increase through to the end of 2009 and continue full blast in 2010. Although it's too small to restore the economy to full health by Election Day, the stimulus needs only to give the economy enough momentum by then to convince voters it's on the way to being restored."

Anyone who actually considered the election calendar in timing the stimulus effects should be in prison.

That's basic.

Goes for pugs and Democrats alike.

[Jennicut]

10. Nah. That was done to help the economy along at points when needed

However, he is right that it might pick up around that time.

[Skwmom]

3. What type of recovery is a recovery based on spending by a government that is broke?

When is a real economic recovery going to occur?

[DJ13]

4. Mr. Reich fails to understand that consumer spending wont increase

Even if "the sharp falloff in spending on durables means lots of cars and appliances will begin wearing out by the middle of next year" is accurate, increased spending wont begin due to unemployment, reduced pay for those with jobs, a credit system that is deliberately damaging EVERYONES credit with the games the credit card companies are playing on their own customers, and an increased aversion to any risk by lending institutions which now refuses to lend without nearly perfect credit.

No, the consumer wont be spending on new major purchases in this environment, they will scrimp and save to repair what they already have.

[OwnedByFerrets]

5. I hope he's right....many are predicting much worse.

[earthside]

6. No Real Recovery ...

... sorry, Bob.

With the consumer busted and the "last resort" federal government soon to be another five or six trillion dollars in debt, the "business cycle" has been un-cycled.

Sure, with that much funny money sloshing around, there are going to be "up" periods (like now apparently). But, medium and long term the Wall Street formula (and that's what the Obama-Geithner plan is) will only impoverish more Americans and further enrich the upper-crusty.

Only if we make Obama tell the Wall Street elitists to take a hike and he adopts a version of David Korten's plan as outlined in "Agenda for a New Economy" will we ever have a return to a sustainable, genuine prosperity.

[glitch]

8. Second this.

And for those who haven't read it: http://www.truthout.org/020709F

[Skwmom]

9. Great post!

[mopinko]

7. please do not post more than 4 paragraphs

breaking it up into 2 boxes does not make it copyright compliant.
thanks. admins will snip.