End of Year Thoughts on the US Economy

Here is Nobel prize-winning economist Joseph Stiglitz with thoughts about the economy:

The global economy ends 2010 more divided than it was at the beginning of the year. On one side, emerging-market countries like India, China, and the Southeast Asian economies, are experiencing robust growth. On the other side, Europe and the United States face stagnation – indeed, a Japanese-style malaise – and stubbornly high unemployment. The problem in the advanced countries is not a jobless recovery, but an anemic recovery – or worse, the possibility of a double-dip recession.

This two-track world poses some unusual risks. While Asia’s economic output is too small to pull up growth in the rest of the world, it may be enough to push up commodity prices.

Meanwhile, US efforts to stimulate its economy through the Federal Reserve’s policy of “quantitative easing” may backfire. After all, in globalized financial markets, money looks for the best prospects around the world, and these prospects are in Asia, not the US. So the money won’t go where it’s needed, and much of it will wind up where it’s not wanted – causing further increases in asset and commodity prices, especially in emerging markets.

Given the high levels of excess capacity and unemployment in Europe and America, quantitative easing is unlikely to trigger a bout of inflation. It could, however, increase anxieties about future inflation, leading to higher long-term interest rates – precisely the opposite of the Fed’s goal.

This is not the only, or even the most important, downside risk facing the global economy. The gravest threat comes from the wave of austerity sweeping the world, as governments, particularly in Europe, confront the large deficits brought on by the Great Recession, and as anxieties about some countries’ ability to meet their debt payments contributes to financial-market instability.

The outcome of premature fiscal consolidation is all but foretold: growth will slow, tax revenues will diminish, and the reduction in deficits will be disappointing. And, in our globally integrated world, the slowdown in Europe will exacerbate the slowdown in the US, and vice versa.

With the US able to borrow at record-low interest rates, and with the promise of high returns on public investments after a decade of neglect, it is clear what it should do. A large-scale public-investment program would stimulate employment in the short term, and growth in the long term, leading in the end to a lower national debt. But financial markets demonstrated their shortsightedness in the years preceding the crisis, and are doing so once again, by applying pressure for spending cuts, even if that implies reducing badly needed public investments.

Moreover, political gridlock will ensure that little is done about the other festering problems confronting the American economy: mortgage foreclosures are likely to continue unabated (legal complications aside); small and medium-sized enterprises are likely to continue to be starved of funds; and the small and medium-sized banks that traditionally provide them with credit are likely to continue to struggle to survive.

Funny... here you have a world class economist saying things are bad in the US and could easily slip into a double-dip recession. On the other hand you have Obama with his hand over his heart saying that even though he had promised that his $700B stimulus in 2009 would fix the economy, trust him, for sure, this $800B tax cut in 2011 will surely fix the economy. Who are you going to believe? Honest Obama or that lying, nobody called "Stiglitz" who obviously is yammering about bad economic news only to confuse people. Obama promised "Hope!" Well... now is the time to all close our eyes, clap three times, and "hope" that Obama will deliver.

Me... I gave up "hoping" for Obama. The guy is a fraud. He said he cared about "the people". He only cares about Wall Street and the big banks.