Economy Likely To Perk Up in ’09, Experts Say-SDBJ Excerpt
November 26th, 2008 categories: Our Market
A panel of economists at the University of San Diego agrees that the nation and region are in the throes of a recession, but they give some hope things may improve next year.
A key prerequisite to stabilizing before the anticipated rebound is continued foreign investment into the country, several panelists said Nov. 17.
“As long as the world continues to lend us money, we’ll continue to have our cake and eat it, too,” said Ryan Ratcliff, an economics professor.
And while we’re obviously suffering from economic upheaval, the fact is that most still regard this nation as much better off than other economies, panelists said.
“The U.S. economy looks like it’s going into the tank, but we’re considered a safe haven,” said Alan Gin, the economics professor who puts out a regional economic index.
Gin and his USD colleagues outlined the causes behind the turmoil, which has its genesis in an overheated housing market that began deflating in 2006 and blowing up in 2007. From there, the problem spread to the financial services industry, which caused stock markets to plunge.
In turn, banks began failing or hoarding their cash.
Then consumers began spending less. As a result, more companies’ sales declined, which led to increased layoffs. Add escalating gas prices earlier in 2008, and it’s a prescription for disaster.
The often optimistic Gin said earlier this year that San Diego would end 2008 with a net gain of jobs. He’s now saying 2008 will end with a net loss of jobs, only the fifth time that’s happened in the last 40 years.
The loss will be small — he couldn’t say exactly how much — but it will be “a full blown recession at a local level.”
The same will hold for the nation, Gin said.
The economy will contract in the fourth quarter for a second consecutive time, officially marking a recession. The downturn will extend into the first two quarters of 2009.
National unemployment could rise to 8 percent from the most recent rate of 6.5 percent. Locally, unemployment could surpass 7 percent from its 6.4 percent rate in October, Gin said.
History As Guide?
To the question whether this will turn into a Great Depression, Ratcliff said the 1930s were far worse. Contributing to the extended malaise was government retention of high tariffs (effectively killing exports); adherence to the gold standard that increased interest rates and shrinking money supply by 30 percent. Those all proved to be the worst responses, Ratcliff said.
In the ensuing years, Washington enacted a bevy of measures that have helped, such as setting up national insurance on bank deposits.
The recent bailout programs have appeared to thaw financial markets, but no matter what government does, it cannot stave off this recession, Ratcliff said.
The panel grappled with the issue of increased government intervention in the private sector and whether taxpayer dollars should be used to prop up failing companies.
Gin said Congress will extend some type of bailout for car makers, because of the number 17.
“That’s the number of electoral votes in Michigan.”
Mortgage Factor
Mark Reidy, executive director of the Burnham-Moores Center for Real Estate at USD, said the seeds of the crisis were sown years ago as billions of dollars of investment flowed into this country in search of better returns.
Wall Street responded by creating ever more complex and riskier securities — all backed by mortgages.
Congress cooperated by putting pressure on Fannie Mae and Freddie Mac, the biggest buyers of mortgages, to relax standards and accept subprime mortgages.
Then the credit rating agencies assigned ratings to the securities that turned out to be invalid.
Additionally, “the regulators absolutely did not do their jobs. They looked the other way,” Reidy said.
Despite what he called a shattering of our national reputation because of massive defaults on home loans, Reidy and the panelists agreed recent data prove the nation remains a better investment bet than most anyplace else.
“This is still the safest currency in the world. There’s been a flight to quality,” Reidy said.
Ratcliff pointed out that recently there was a positive sign in the local housing numbers. Last month, data showed that foreclosures had declined from the previous month and that home sales were picking up.
It provides a glimmer that a turnaround is nigh, he said.
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