How Many Revised Economic Forecasts Before The Fed Says The “R” Word?

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Just how many revised economic forecasts does it take to finally conclude that the U.S. is in a recession? Former Fed Chairman Alan Greenspan likes to up his odds we’re heading into a recession by approximately 20 percentage points every quarter. Current Fed Chairman Ben Bernanke seems to prefer a different approach. His modus operandi is to lower GDP a few tenths of a percent with each revised outlook.

As an outside observer, this measured slide towards using the “R” word feels like being in my car at a red stoplight with my favorite backseat driver seated beside me. As we wait for the lights to change (because we know they will), my trusted traffic manager sits there predicting the seconds until the opposing green light will turn yellow…never getting it quite right…but jubilant each time he announces…after the fact…that “The light just turned yellow”. This process continues until our red light turns green and we can proceed to the next intersection…to start all over again.

While I realize my analogy isn’t an actual equivalent, the frustrations are much the same. Yes, predicting the twists and turns of the economy isn’t an exact science…but I do find our willingness to grant these prognosticators a free pass each time they err to be a rather absurd practice. The fact that the nation holds its breath each time a new report is scheduled for release merely supports my contention.

WASHINGTON (AP) — The Federal Reserve on Wednesday lowered its projection for economic growth this year, citing damage from the double blows of a housing slump and credit crunch. It said it also expects higher unemployment and inflation.

Under its new economic forecast, the Fed said that it now believes the gross domestic product will grow between 1.3 percent and 2 percent this year. That’s lower than a previous Fed forecast for growth, which at that time was estimated to be between 1.8 percent and 2.5 percent.

With economic growth slowing, the Fed projected that the national jobless rate will rise to between 5.2 percent to 5.3 percent this year. That is higher than the central bank’s old forecast for the rate to climb to as high as 4.9 percent. Last year, the unemployment rate averaged 4.6 percent.

And, with energy prices marching upward, the Fed also raised its projection for inflation. The Fed now expects inflation to be between 2.1 percent and 2.4 percent this year. That’s higher than its old forecast for inflation, which was estimated to come in at around 1.8 percent to 2.1 percent.

The Fed said its revised forecasts reflected a number of factors including “a further intensification of the housing market correction, tighter credit conditions …. ongoing turmoil in financial markets and higher oil prices.”

In truth, I suspect that the average American has just as good a sense of where the economy is headed as those who get paid to inform us. If the last number in our checkbook is negative, we conclude we have a problem. Why wouldn’t the same math hold true for our national economy?

No, we allow our political leaders to sell us on the notion that a tax rebate of $300.00 to $1,200.00 is all that matters and all that is needed to jump start the economy…even as they continue to predict further economic contraction. Excuse me, but isn’t that on par with each of us taking a cash advance on an already debt heavy credit card and thinking we’re suddenly in the black?

Look, I understand the notion of spending an economy out of a downturn. However, the rest of that equation posits that the increased spending will result in new jobs, greater investment and productivity, and increasing revenues for the individual, the corporation, and the government.

Unfortunately, this equation may no longer be valid…especially since the jobs are often created in other nations, the investments are frequently targeted for countries with cheap labor such that productivity is less relevant, and the only increased revenues find their way into the pockets of formerly impoverished third world individuals and the corporations and their CEO’s that benefit from the enhanced bottom line that ensues.

So what does the average American get? A stimulus package that provides a single check that won’t overcome the unfavorable wage-inflation ratios, the higher costs of fuel, the expanding credit card debt, the skyrocketing health care costs, and the ever shrinking job opportunities.

At the same time, some of our political leaders clamor for making the tax cuts for the wealthiest Americans permanent and lowering the corporate tax rate from 35 to 25 percent. I don’t know about anyone else, but these refund checks remind me of the dynamics underlying “the world’s oldest profession”…the one where one party gets poked for a few bucks by the fat cat who realizes that money can buy him anything he wants.

In the end, getting the powers that be to speak the “R” word is an exercise in relabeling. After all, once the deed has been done and the hush money has been paid, does it really matter what we call an old fashioned screwing? I think not.

Cross-posted at Thought Theater

7 Responses to “How Many Revised Economic Forecasts Before The Fed Says The “R” Word?”

  1. steve Says:

    Two questions:

    Since you totally hate all Republicans, would you feel vindicated that there was a recession?

    Also, if you get a $300-$1200 check, will you cash it and use it for your own gain?

  2. rube cretin Says:

    Daniel,
    Recession hell. My Friends, the excrement has hit the whirling blades. The way this thing is moving we will be in a depression by the end of this year. Everything from lawn care to fast food is now being effected by the struggling economy. i have been watching CNBC and Bloomberg daily for the past few weeks and the so called top technical analysts are confused and offering inane bullshit comments and solutions.

    A little advice from and old man. Pour yourself three fingers of the best medication you have and google LATOC. You don’t have to read the entire blog, even though it would give you a better overall perspective on the the problem we face. instead just read the collection of breaking news articles for January 20, 2008. The wheels are coming off the economic wagon at a rate even the most pessimistic find surprising.

    Steve, i especially challenge you to undertake the exercise mentioned above. This is not about republicans and democrats or $300-1200 checks. You have a family and its about time you became responsible by getting prepared. Reading your comments over the past few months indicates you have a lot of work to do.

  3. rube cretin Says:

    Sorry, but it is the middle of the night. the January 20 reference above should be February 20. Read the February 20 collection of articles.

  4. The Sirens Chronicles » Dizzy’s Ten Post Round-Up Says:

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  5. manapp99 Says:

    Anyone who feels that giving back some small protion of the money the government takes from you is bad idea and is worried about the increasing national debt is welcome to send it back earmarked specifically to pay down the debt. Easier still, just don’t cash it.

    You don’t see the rich libs donating billions to the reduction of the debt. Instead they give it to each other. Like Warren Buffett giving his billions to Bill Gates. You would think that if the debt were such a major crises, the elite libs in Hollywood would be willing to sacrifice for the betterment of the country. Why not debt reduction concerts, taking 80% of the obscence profits from entertainment and sending a check to Uncle Sam. How about Michael Moore giving back to the government that allowed him to amase great wealth bashing it.

    Same holds true for the sub prime crises. You see stars coming together for global warming (now known as climate change) but not for the very real, immediate crises affecting the very people that made them rich.

    I suppose you will be able to tell if we really are in a recession, or when the excrement really hits the whirling blades as Rube would say, by watching the super rich liberals. When they start having to cut down the size of their champagne orders for the next political fund raiser for Obama, you know we have hit bottom.

  6. Daniel DiRito Says:

    Steve,

    If nothing else, you are persistent in your themes.

    Before I can answer your first question, I must correct your inference. I don’t “hate” all Republicans…in fact I don’t hate anyone based upon party affiliation…and I doubt I actually hate anyone. Bouts of intense dislike…yes. Disgust with some people…certainly.

    With that said, the answer to your question is no. How can one feel vindicated by a recession? Do I find the current administration’s economic policy lacking? Totally. Is that comforting? Of course not.

    As to your second question, I had written a posting that I never published in which I sought to launch a campaign for taxpayers to do one of three things with their refund checks. One, don’t spend it, save it. Two, if need be, pay off debt. Three, send it back. I didn’t publish the piece because I was convinced the campaign would fall flat on its face.

    Regardless, I still believe taxpayers shouldn’t spend the refunds to protest the short-sighted stupidity of these “bribes”. If we’re going to stimulate the economy, it ought to be with more than the equivalent of applying pads to chest to jolt the heart back to life. These quick fix gimmicks are insulting.

    I do know I won’t spend any refund I may receive and I may well send it back as a hollow gesture. I wish I could believe others would join me in that protest…but I’m not that naive. Oh well.

    Regards,

    Daniel

  7. How Many Revised Economic Forecasts Before The Fed Says The “R” Word? Says:

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