Are Paulson-Bernanke Overhyping the Danger?
Based on the doom-and-gloom scenario that Paulson and Bernanke peddled to Congress, the bailout plan seemed worth the cost to me. (And I note that credit markets are today as bad as they have been since this crisis started.) But some Wall Street economists don't seem nearly as negative as our guys in Washington. Here is what the folks at Global Insight were saying on September 15:
The economy is very weak, the recession wolves are pounding down the door and the financial system faces new deflationary threats from the bankruptcy of Lehman Brothers. This is an emergency situation and an aggressive response from the Fed is needed. Without such a response, pressure on Congress to take further action to stem the crisis would be unstoppable.
But the firm just released an economic forecast that assumes Congress does nothing:
Although the U.S. financial crisis is bringing sweeping changes to Wall Street, parallels to the Great Depression are overblown. The U.S. economy is far more resilient today, thanks to income support policies, federal deposit insurance to prevent banking panics, and flexible exchange rates. From 1929 to 1933, real GDP contracted 27%, prices fell 25%, and the unemployment rate climbed from 3% to about 25%. Even in our pessimistic alternative forecast, the peak-to-trough decline in real GDP is just 1.5% and the unemployment rate peaks below 7.5%.
Me: I'm sorry. Spending $700 billion (which is really $2.5 trillion since you are borrowing the money) to stop a recession—no worse that what we saw in 1990-91 (one quarter of -3 percent growth and one quarter of -2 percent growth) or even 2001 (one quarter of -1.4 percent growth)—seems nutsy. If they want to get this thing passed, Paulson and Bernanke better be more explicit about the risks.
Tags: economy | recession | Ben Bernanke | Wall Street | Henry Paulson | government intervention
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wilburM
Every time I hear the phrase "calls for bipartisan cooperation" I immediately think: 'Oh, sh1t!"
I think back to the most recent examples of such 'bipartisan' action:
telecoms let off the hook
enron let off the hook
patriot act
patriot act re-upped
authorization for war in iraq
here's to more partisan politics!
The $700 Billion solution=The 301,139,947 million solution
The $700 Billion solution=The 301,139,947 million solution Just say NO
Do not give any money to any company under any scenario. Just say NO
There is a documented population in the U.S. OF 301,139,947
Give every citizen 1 million dollars.
Just as the “stimulus” was done.
Stipulate: pay all debt and document for the IRS.
Stipulate: for any person under 21 years of age parent former guardian must put entire amount in trust for citizen.
At 21 every citizen must pay all current debt document for IRS.
Begin plan Monday Sept 29 with the US tres. writing checks and mail immediately.
All citizens must file documents April 15th 2009 and provide documentation of debt payments if there are any if there is any fraud the IRS to collect 1 million BACK under penalty of prosecution with a mandatory one year jail term. Statutory limit of 20 years.
That would help Main Street and revitalize the economy.
Any business that fails fails.
Clean simple and helpful.
AND ONE HELL OF LOT LESS DEBT FOR MY 2 YEAR OLD SON AND YOUR CHILDREN.
Boo!
Are they overhyping? Well gee I really don't know. They did say we are in 'serious trouble' and threw about words like 'recession' and 'depression'. However that might not be enough to convince the American people just yet. Personally I think they ought to use terms like 'financial plague', perhaps with snapshots of sick babies, or they could claim that it was the terrorists that caused all this to happen and just blame it on them. If that doesn't make us fearful enough, they could show us pictures of aliens invading America, or tell us that if we don't support the bailout that the Earth will spin off its axis and we'll all be destroyed in the ensuing mayhem. Yes, that's it. Up to now fear has been such a great weapon of this Administration, so why stop now? We look forward to being deluged with fearmongering so we can all feel good about supporting this bailout. I now have a sudden urge to eat a cheeseburger.
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