Monday, August 30, 2010

The Optimistic View

Not passing this along because I agree or disagree, I'm just fascinated by what's presented as the optimistic outcome.

If Berner's right, the worst is over. He expects consumption to grow 2 to 2.5 percent annually, propelling a steady -- if unspectacular -- recovery. Indeed, consumption spending grew at a 2 percent annual rate in the second quarter. Berner forecasts unemployment to decline slowly to about 9 percent by year-end 2011.

The trouble with this analysis, as Berner admits, is that it presumes that most of the adjustment has already occurred. But what if worried Americans are only midway? In the past decade, they counted rising stock and home wealth as "saving," which rationalized high borrowing and spending. Now, the process may work in reverse. Since late 2007, lower home and stock values have shaved about $10 trillion from household wealth. If Americans tried to replace most of this through more annual saving, consumer spending would remain weak for years.

So the good scenario - the worst is over - unemployment will drop all the way down to 9% by the end of 2011!!

In January 2009, the administration projected that unemployment would drop below 7% by the end of 2011, without any stimulus.