Sunday, March 1, 2009

What deep recession? Rosy Scenario is back in town and working for Obama!

Some catastrophe. This is going to be like the Great Depression? The Obama Administration is expecting that the economy will contract only 1.2% for 2008 and will actually grow by over 3% (3.2%) in 2010. These are the assumption used to project revenues and expenditures. The long-term growth of the economy is 3%, so we will be back on our long-term growth path by 2010. So where is the problem? Why all of the negative talk?

We just had a negative 6% fourth quarter, so if we have deep first quarter decline, we will have to have a positive number to get back to only a 1.2% decline. From the Miami Herald, "While the recent track record of most private forecasters leaves much to be desired, the February Blue Chip Consensus forecast predicts a deeper contraction this year -- minus 1.9 percent -- and a slower growth rate next year of 2.1 percent. CBO offers the steepest contraction projection this year, minus 2.2 percent, and the slowest return to growth next year, an anemic 1.5 percent."

"They used to joke during the Reagan years that the highest-ranking woman in the administration was Rosy Scenario," said Nariman Behravesh, the chief economist at IHS Global Insight, a major private forecasting firm.

This does nothing to reduce market uncertainty or provide the government with creditability. Ok, others have been optimistic in the past but it is hard to square the negative speeche and need fro stimulus with the government's prediction of a V-shaped recovery.

Rosy is back in town!

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