That saying, “Things will get worse before they can get better” sounds ugly, but what if economists and Barack Obama are wrong about that timing, and markets and exchange traded funds (ETFs) begin their rebound sooner?
James Pethokoukis for US News & World Report gives five reasons why he thinks the economy may recover faster than we think, while we play devil’s advocate and give five reasons why it won’t:
Plunging oil prices: High gas prices last Summer were at $4 per gallon nationally, and now they are at $1.67; oil prices per barrel were at $147 globally, and now they are at $40 per barrel. James Glassman at JP Morgan Chase puts it like this:The typical household drives 15,000 miles annually. So a drop in gas prices to, say, $1.50 a gallon would represent a savings in their annual gas bill of $2,500 from when gas was at $4. This could boost GDP growth by as much as two percentage points.
Our take: Oil may not be staying put. This sharp drop in demand could be only temporary, and when people start spending their money more freely, we could see prices spike again. What it’s going to take is a new way of thinking and living, and not just when prices are high.
Falling Mortgage rates: Mortgage rates are falling faster than energy prices, which should help affordability and the current homeowners likeliness of re-financing their current mortgages. The Treasury Department is considering a plan to get new homeowners in for as low as 4.5%. The housing correction is the start of an economic correction.
Our take: Have the problems that led to the housing bubble been fixed? Will we see tighter lending standards, or in our desperation to rejuvenate the housing market, will anyone and everyone start getting loans again?
The Feds are taking action: The Feds are doing whatever they can to keep the economy from going under. Liquidity is getting pumped into our system as fast as possible, so anything is possible.
Our take: The Fed has taken action in the form of sharp, historic rate cuts. But nothing seems to have stuck yet. At times, it has seemed like the government is flying blind and making it up as they go along. Do they really know what they’re doing?
Obama’s stimulus plan, revised: Whether its the $750 billion to $1 trillion stimulus plan or the rumored payroll tax holiday, Obama’s promise to pump up the economy will put money into the economy as well as jobs.
Our take: Some are concerned about the lack of federal oversight once these funds are dispensed. If no one is minding the store and seeing how the money is spent, how can we be sure that it’s really going to help anything?
America’s drive: The United States is the number one economy in the world for a reason. Among America’s strengths: innovation, flexible labor markets, and higher education. Overall, America has come a long way since the 1970s and will continue with high productivity and a better tax and regulatory system.
Our take: While this may be true, have Americans truly learned from the mistakes that got us here in the first place? Will we become a nation of savers? Will we live within our means and not live on credit? Until we learn how to be more frugal, history could wind up repeating itself.