Robert Reich: My Recovery Prediction-There's a reason it's called the "business cycle."

[kpete]

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.

..............

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

[county worker]

1. "At the rate houses .... are now dropping, they'll be terrific bargains by the middle of next

year."


I don't know about that. In my case my house value has dropped below the point where I can sell it and break even. I'm not going to sell it at a bargain because I can't make up the difference to cover the mortgage and the sales commission. If the value keeps on dropping I'll hold on to it until I get some equity back as long as I can make the payments and I think that is what a lot of owners will do. I lost over $100,000 in equity and it will take a long time to get it back if ever but I'll be damned if I'm going to go more in to the hole and sell it at a loss.

[Tejas]

4. Reich is full of it

That pie-in-the-sky speil in the OP is for the delusional, it is so disconnected with reality it's hard to describe. It doesn't look like he figured folks like you into his little daydream, that is unless your investment taking a bath is part of his plan.


"At the rate houses and stocks are now dropping, they'll be terrific bargains by the middle of next year."

What in blue blazes has that got to do with right now?

Oh wait, I see, looks like re-electionability is one of his main concerns.

[Kaleko]

2. It's good to know that at least two credible economists, Reich and Roubini,

see some chance that Obama's plan could succeed.

Krugman and Stiglitz are scaring the shit out of everyone.

[LSparkle]

3. Robert Reich for Treasury Secretary!

He's progressive, but he's also an ex-Clintonite ...
Might appeal to both wings of our party.