Thursday, February 19, 2009

NEWSMAX.COM

On Feb. 19, NewsMax.com reports: "Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent.

"The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent."


WATCHDOG: Given the above worse case scenario, the Federal Reserve is predicting that 98.7% of the economy of the nation will continue to function throughout the year despite the current sharp recession. Stated that way, does that sound so terrible?

All recessions are corrections. The economy needs time to digest financial excesses by businesses and consumers and the over-production of homes, cars, capital goods and other items. Consumers and firms put off purchases. Factories reduce production. Workers are laid off.

But over time vehicles wear out, appliances need replacement, businesses need to improve technology and equipment to compete. With the inventory glut worked off and business restructured at a level of profitability, money is being made again.

So buying picks up, factories go back to work, and employment climbs.

The Watchdog perceives two things that appear unique to this recession: The break down of the financial system due to historically improvident lending which required government intervention through injection of capital in exchange for restricted stock. And the continuous jaw boning by government officials about what terrible times lay ahead. When is the last time anyone said an encouraging word?

FDR famously said in 1933 "The only thing we have to fear is fear itself." Our current leaders, including the past and current president, tell us what amounts to "The sky is falling" and this has been going on for six months!

The Watchdog does not mean to minimize the sharpness of this recession and the unusual aspects of the banking crisis. Yet let us hope that hysterical warnings aren't a self fulfilling prophesy.

We have already been told that $80 billion of the initial Bush "bail out" program was wasted by paying above market price for securities. (What that was all about deserves investigation.) Let's pray that a large portion of the just signed and forthcoming Obama "rescue" or "stimulant" plans are not careless and wasteful spending that will hobble our economy for decades to come.