Today's report that the US economy grew buy 4.9% in the 3rd quarter even with pressure from the housing market, is a tribute to the strength of the economy. The fact that in the third quarter, the housing slump cut a sizable 1.08% off GDP, makes you admire just how strong and resilient the economy is. I hate to burst the bubble of the mainstream media (could they have a political agenda?), but facts are facts. Unemployment remains low at just 4.7%, the economy is growing, taxes remain low, and interest rates are falling. I admit that fourth quarter (Q4) GDP numbers wont equal Q3's but a recession? Not going to happen. The pessimist always say that the consumer will stop spending and that will be the nail in the coffin. Well I have been hearing this for years and years, and they continue to spend and there is no reason to think they will stop spending.
The claim will be made that foreclosures are surging and that will be a big drain on the economy. What the FED needs to do is drop short-term rates even more. The sub-prime adjustable-rate mortgages (ARMs) are due to reset and since they are linked to Fed Funds markets as well as the LIBOR rate, so if the FED cuts these rates it will provide relief to the mortgage holder.
Economist Larry Kudlow has a brilliant piece about what needs to be done to solve the sub-prime problem. He calls on the FED to drop short-term rates.
"The bottom line remains simple: The Fed must right-size the inverted Treasury yield curve by bringing its 4.25% target rate much closer to the 3-month Treasury bill, which is trading below 3 percent, and below all the other Treasury rates that are lower than the fed funds rate.
Financiers can't borrow short to lend long unless the key borrowing rate is well below medium- and short-term rates. Because the yield curve remains inverted, and money-market credit is frozen, the U.S. monetary base is growing at less than 2%. This is very tight money. (Incidentally, this is why no one should be worried about future inflation, even after last week's price-index flare-ups.)"
The economy is fine. With these steps we will continue to see 4%+ growth going forward.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/20/07.
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Reader Comments (Page 1 of 1)
1-06-2008 @ 10:53AM
Ron said...
Bull, Bull and More Bull.
The more I listen to this junk spewing from Larry Kudlow and his cronies the more I want to see the likes of him drawn and quartered for failing to be "fair and balanced" and most of all HONEST.
We have sold our soul to foreign interests in this country, our greed for more and more and bigger and better has tainted our way of life and will haunt us for decades to come.
Cheap Money provided by the government to enslave us by sinking us into bottomless debt. The like of Kudlow and Cramer would have us max out our credit lines, credit cards, in order to artificially pump up the economy.
We have not been encouraged to save. We squander every penny we earn. We are forced to have 2 income families in order to pay for our excesses.
Larry Kudlow says we American consumers will never stop spending. He is right there. Until all of us wake up and smell the coffee, the likes of Larry Kudlow and company will continue to lead the train right off the cliff.
Cramer needs a new button it is named "Spend, Spend, Spend".
May God have mercy on us.