Krugman, Feldstein, and Hatzius See Gloomy Economic Outlook

Today’s Conference on America’s Fiscal Choices at the Newseum in Washington kicked off with a panel of Nobel Prize Winner Paul Krugman, Marty Feldstein, and Goldman Sachs’ Chief U.S. Economist Jan Hatzius agreeing that unemployment will rise over the next few months, that $787 billion of stimulus wasn’t enough, and that we’ve got a 2 out of 3 chance of 1% to 2% real GDP growth and a 1 out of 3 chance of sliding back into recession. I kidded a budget buddy later that being an economist allowed my friends to overlook my chronic depression.

The panelists agreed that the gloomy economic outlook will be caused by fiscal tightening of severely strained state governments, by a commercial real estate bust that will drag down many small banks, by continued weakness in residential housing, which could see further price declines, and by an inability to export our way out of this mess by weakening the dollar because the rest of the world is in the same boat. Paul Krugman went so far as to say “…on the current track, we’re going to look at Japan’s lost decade as a success story, compared to our experience.”

With even worse policy gridlock in Washington following the November 2 election, the earliest the panelsts could see stronger growth was two or more years out if then. All called for more stimulus and for the Fed to undertake quantitative easing at its next meeting November 2-3. Personally, I don’t see how Washington is going to deliver more stimulus, but my market clients all expect the Fed to start quantitative easing soon.

The agenda is here, and the webcast will be posted there soon.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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