Dangerous Talk Blog

Tuesday, February 03, 2009

My Economic Predictions for 2009

With the economy in a spiral downward, here are a few of my predictions about what the financial picture will be like on February 1, 2010. That's about a year from this post.

Here are the basic economic indicators I predict for February 2009:

Unemployment: 11 percent or more
Budget deficit estimate for fiscal 2010: $1.5 trillion (less than 2009)
Inflation: 5 percent
Interest rates: Rising quickly
GDP growth: -2 percent or more (most of it in the first half of year)

Here's the Cliff's Notes' version of what's going to happen over the next year:

President Obama and his compliant Congress will skate along until about September/October with a "spend and deficit our way to prosperity" philosophy as the economy continues to spiral downward. It will actually prevent a recovery. The deficit for 2009 will top out at $1.8 trillion or so when all the final numbers are tabulated. The Federal Reserve will continue to keep the discount interest rates artificially low, but it won't stop the recession because the deficit will suck all of the financing out of the economy.

Unemployment will rise quickly the first half of the year and then trickle upward for the rest of the year. That'll be all the "recovery" we see, because we already prevented a recovery with deficit spending.

Just as the leaves start to fall next autumn, so will the international credit markets on the U.S. dollar. The Chinese will decide they've had enough of our bad debt. The Japanese will publicly step forward and declare they'll fill in the gap, but that'll only last a couple of weeks. Definitely not more than a month. Then, at about Thanksgiving (but after the elections) we'll have a financial meltdown and Congress will start to talk seriously about cutting spending. But only because there's no one is left to borrow from, and only after they rumble about increasing taxes. (But because it's an election year, it'll only be a rumbling rather than a serious attempt to raise taxes.)

By February next year the panic will be over and we'll have hit bottom. The economy's going to really suck. Some of the big spenders will have been thrown out in the November elections, though not enough of them. Nevertheless, we'll see some real budget cuts being made, including entitlement cuts.

And genuine growth, however small and gradual, will begin again.

... or I could just be all wrong.

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