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Polishing the crystal ball
comments (0) January 5th, 2009 in Blogs
Richard Defendorf, contributor
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The forecast for 2009 includes wind, rain, sleet, snow, sun, and moderate, hot, and cold temperatures, with occasional hurricanes and tornadoes.
And that’s just the economic forecast.
I’m a fan of predictions, or at least the people who dare to make them. It takes courage, if not expertise, to put your opinions on the line like that.
On Saturday, for example, The Wall Street Journal published an overview of predictions for market behavior – particularly stock market behavior – in 2009. Long story short, economists are generally cautious about prospects for the stock market during the first half of the year, less cautious about the second half.
This morning, though, Journal reporter Jon Hilsenrath blogged about an academic paper presented this past weekend that uses historical precedent to offer a sobering view of what’s in store. “The Aftermath of Financial Crises” (click here for PDF) looks at what happened to 22 economies ranging from Indonesia in 1997 to the U.S. in 1929 after a major crisis. If history is prologue, the prospects ain’t good: housing would hit bottom some time in 2010, the stock market fails to rebound this year, and the unemployment rate tops 11% as government debt continues to soar.
On the other hand, as economists like to say, there are unique forces at work in our current situation that have prompted some forecasters to predict that the economy will indeed start growing slowly – or at least bottom out – six months from now if Congress passes the two-year $675 billion stimulus package proposed by the incoming Obama administration.
That’s still a fairly big if, as a story in Saturday’s New York Times pointed out, but the president-elect’s suggested $310 billion tax cut might help win support for the stimulus package from otherwise reluctant Republicans. The tax plan would provide significant tax relief for individuals and businesses, and could nudge consumer spending – and help ease the unemployment rate – in fairly short order.
Let’s hope the plan holds together, come wind, rain, sleet, or snow.
posted in: Blogs, business
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