This is a very interesting article which appeared in the New York Times by NICHOLAS D. KRISTOF on March 26, 2009.
What's interesting is how 'Hedgehogs'- experts with strong convictions who tend to see things in black and white - provide better 'soundbites' and are thus featured more prominently than 'Foxes' - who are more pragmatic and cautious and tend to be more accurate in predictions - but don't get as much air time due to providing less impressive 'soundbites'.
Something we should all keep in mind when we listen to experts making strong statements about the economy (or anything else for that matter).
http://www.nytimes.com/2009/03/26/opinion/26Kristof.html
Monday, March 30, 2009
Thursday, March 19, 2009
Will the Economy really recover by 2010?
There have been some rosy predictions about the economy lately. Federal Reserve chairman Ben Bernanke predicts the recession will end by the end of this year and the recovery will begin in 2010. Markets have rallied with news the U.S. government is pumping $1.15 trillion into the financial and housing markets.
On the other hand, we are still seeing housing prices fall and unemployment figures are continuing to rise. Factor in that AIG is not exactly financially healthy and we have the recipe for disaster. Apparently, AIG requires bonuses to keep their 'talent' - the same talent that got them into the mess in the first place. The bonuses are supposedly to ensure they don't leave and force AIG to require another massive bailout.
Additionally, we aren't seeing a sudden surge in consumer spending, nor are we seeing a recovery in the auto industry. I think Mr. Bernanke is looking at different numbers than I am. Of course, one can reasonably argue that half the problem, and thus half the solution, is consumer sentiment. If optimism returns, people may begin to spend again, which will, presumably, strengthen the economy.
On the other hand, with consumer debt at record highs, maybe spending money we don't have is part of the problem. Combined with a huge government debt which is steadily climbing and the fact that China has indicated a concern the U.S. is simply printing money, thereby devaluing China's investment in the U.S. and we are faced with a less rosy outlook.
Quite frankly, I don't see an end to the recession by the end of the year. I certainly don't see a recovery by 2010. I hope I'm wrong of course as nobody wants to be the harbinger of doom, but I just don't see how everything will turn around in a year.
Pushing through massive stimulus packages quickly may be required to help the economy but the risks of abuse, poor decisions, and recklessness are directly proportional to the speed with which the bailout is implemented.
A bit of a catch-22.
On the other hand, we are still seeing housing prices fall and unemployment figures are continuing to rise. Factor in that AIG is not exactly financially healthy and we have the recipe for disaster. Apparently, AIG requires bonuses to keep their 'talent' - the same talent that got them into the mess in the first place. The bonuses are supposedly to ensure they don't leave and force AIG to require another massive bailout.
Additionally, we aren't seeing a sudden surge in consumer spending, nor are we seeing a recovery in the auto industry. I think Mr. Bernanke is looking at different numbers than I am. Of course, one can reasonably argue that half the problem, and thus half the solution, is consumer sentiment. If optimism returns, people may begin to spend again, which will, presumably, strengthen the economy.
On the other hand, with consumer debt at record highs, maybe spending money we don't have is part of the problem. Combined with a huge government debt which is steadily climbing and the fact that China has indicated a concern the U.S. is simply printing money, thereby devaluing China's investment in the U.S. and we are faced with a less rosy outlook.
Quite frankly, I don't see an end to the recession by the end of the year. I certainly don't see a recovery by 2010. I hope I'm wrong of course as nobody wants to be the harbinger of doom, but I just don't see how everything will turn around in a year.
Pushing through massive stimulus packages quickly may be required to help the economy but the risks of abuse, poor decisions, and recklessness are directly proportional to the speed with which the bailout is implemented.
A bit of a catch-22.
Wednesday, March 11, 2009
Consumer Incentives to Buy Autos
Along with Ford, Toyota has asked the Canadian government to provide incentives to consumers in order to increase new car sales. These proposals include a $2,700 US incentive to purchase a new vehicle in 2009 as well as credit and tax breaks.
Incentives have been proposed in the U.S. including incentives to purchase Hybrid vehicles and other 'buy American' proposals, but while the various auto manufacturers have been offering various incentives and rebates, it does not appear, as far as I can tell, that the U.S. government is offering anything close to what the auto manufacturers are asking of the Canadian government.
The argument put forward by Toyota Canada is that rather than focus on a bailout to the Big Three, the Canadian government would be better off stimulating the auto industry via incentives to consumers. This would positively impact the whole supply chain by stimulating demand. Of course, this way the bailout would help Toyota and not just the Big Three. Interestingly enough, Toyota has asked the Japanese government for a $2 billion US loan in order to help cover expected losses of $3.9 billion US in 2009. Additionally, Toyota has indicated that GM and Chrysler should be given a loan from the US as this will help all automanufacturers by ensuring suppliers stay in business.
It's hard to reconcile the two but perhaps the argument can be made that if GM Canada goes under it won't negatively impact Toyota or other Asian automanufacturers since suppliers in the U.S. are far more important. Additionally, by stimulating consumer demand, Toyota stands to gain in Canada whereas the potential loss of critical suppliers in the U.S. would have a devastating impact on Toyota and other Asian auto manufacturers.
Perhaps the U.S. should follow Canada's lead and offer incentives to U.S. consumers to trade in old vehicles for new ones. This would be in addition to any incentives offered by the automanufacturers themselves. Not only will this help stimulate sales, it will be better for the environment by getting old polluters off the road. Such proposals are likely being considered but I'm pretty sure they have not been implemented.
Incentives have been proposed in the U.S. including incentives to purchase Hybrid vehicles and other 'buy American' proposals, but while the various auto manufacturers have been offering various incentives and rebates, it does not appear, as far as I can tell, that the U.S. government is offering anything close to what the auto manufacturers are asking of the Canadian government.
The argument put forward by Toyota Canada is that rather than focus on a bailout to the Big Three, the Canadian government would be better off stimulating the auto industry via incentives to consumers. This would positively impact the whole supply chain by stimulating demand. Of course, this way the bailout would help Toyota and not just the Big Three. Interestingly enough, Toyota has asked the Japanese government for a $2 billion US loan in order to help cover expected losses of $3.9 billion US in 2009. Additionally, Toyota has indicated that GM and Chrysler should be given a loan from the US as this will help all automanufacturers by ensuring suppliers stay in business.
It's hard to reconcile the two but perhaps the argument can be made that if GM Canada goes under it won't negatively impact Toyota or other Asian automanufacturers since suppliers in the U.S. are far more important. Additionally, by stimulating consumer demand, Toyota stands to gain in Canada whereas the potential loss of critical suppliers in the U.S. would have a devastating impact on Toyota and other Asian auto manufacturers.
Perhaps the U.S. should follow Canada's lead and offer incentives to U.S. consumers to trade in old vehicles for new ones. This would be in addition to any incentives offered by the automanufacturers themselves. Not only will this help stimulate sales, it will be better for the environment by getting old polluters off the road. Such proposals are likely being considered but I'm pretty sure they have not been implemented.
Friday, March 6, 2009
Fighting the Economic War
Friday, March 6, 2009
The Department of Labor announced today that unemployment has risen to 8.1 percent, higher than expected and the highest rate since 1983. A staggering 651,000 jobs were lost in February bringing the total job losses to 4.4 million since December 2007.
Back in December I had been predicting unemployment would rise to over 9 percent by the end of 2009 and it appears that, unfortunately, we are on track. Some economists are predicting 10 percent by the end of 2010. One wonders if this will turn out to be a conservative prediction.
Factor in that several analysts are indicating the massive bailout for GM will not be enough to save the troubled Auto manufacturer from bankruptcy and we are definitely going to see the unemployment figure jump as the domino effect takes place across the North American auto industry.
Don’t forget to add in the continuing slide in real estate prices (how many millions of homes have mortgages worth more than the value of their house?), and the predicted additional defaults and we have the recipe for disaster. Are we in a deep recession or a depression?
Any thoughts on how we can get out of this mess? What can companies do to reduce expenses and minimize job losses?
P Moorcroft
www.mgps.com
The Department of Labor announced today that unemployment has risen to 8.1 percent, higher than expected and the highest rate since 1983. A staggering 651,000 jobs were lost in February bringing the total job losses to 4.4 million since December 2007.
Back in December I had been predicting unemployment would rise to over 9 percent by the end of 2009 and it appears that, unfortunately, we are on track. Some economists are predicting 10 percent by the end of 2010. One wonders if this will turn out to be a conservative prediction.
Factor in that several analysts are indicating the massive bailout for GM will not be enough to save the troubled Auto manufacturer from bankruptcy and we are definitely going to see the unemployment figure jump as the domino effect takes place across the North American auto industry.
Don’t forget to add in the continuing slide in real estate prices (how many millions of homes have mortgages worth more than the value of their house?), and the predicted additional defaults and we have the recipe for disaster. Are we in a deep recession or a depression?
Any thoughts on how we can get out of this mess? What can companies do to reduce expenses and minimize job losses?
P Moorcroft
www.mgps.com
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