"I have just returned from attending the National Association for Business Economics (NABE) 52nd annual conference in Denver, Colorado. The theme of this year's conference was 'Mile-High Challenges to Economic Prosperity,' something that seems a bit of an understatement, given the slowing growth and rising unemployment that the economy has been facing since stimulus started to diminish last spring," Chief Economist Diane Swonk stated in her latest newsletter.
In the October edition, Swonk highlights themes discussed at the National Association for Business Economics:
- Consumer spending and housing are universally expected to remain lackluster.
- Companies continue to redeploy profits to upgrade and replace old equipment.
- Most of us believe the pace of productivity growth will slow.
- But hiring will remain subdued until companies feel more confident.
- Even Tom Hoenig of the Kansas City Federal Reserve Bank – who opposes additional monetary stimulus – believes the Fed plans to buy more government bonds to stimulate the economy, because it can't cut interest rates below zero.
- Fed Chairman Ben Bernanke is more worried about repeating mistakes made during the Great Depression - it is better to do something now, rather than nothing.
- Nearly all agreed that the burden of stimulus rests in the hands of central bankers. The Bank of Japan has already started to expand its balance sheet with large-scale asset purchases; the Bank of England is expected to follow; and the Fed appears primed to act in early November.
- On Capitol Hill, the fierce partisanship we are witnessing suggests that deficit debates are more likely to end in crisis than compromise.
"If much of what we thought about the economy was actually a mirage, then it is hard to say that all that much has really changed. Home owners weren't suddenly more qualified to buy. Underwriting had become so bad that anyone, including those without a job (or a pulse) could qualify for a mortgage. Wall Street hadn't grown that much smarter, nor financial innovation more sophisticated. Rather, a rise in the smart people it employed (rocket scientists) had just gotten better at obscuring the risks it was peddling. The Great Moderation – the stabilization of growth and inflation during the past few decades – hadn't eliminated uncertainty. Instead it spurred complacency, which allowed us to falsely discount the risks we actually were taking," she said.
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