Like all good marriages, the union of Barack Obama and the American people will start tomorrow with the best of intentions. The problem is that it won't last, particularly when it comes to the economy.The president-elect already is at odds with House Speaker Nancy Pelosi over whether to repeal the Bush tax cuts before they expire in 2010, according to the Wall Street Journal. The economic stimulus package is expected to top $850 billion as part of Obama's pledge to create jobs and reducing taxes. Meanwhile, the housing market continues to stink and the stock market continues to be dreadful.
Improving the economy is going to be a long, painful process. Think turning around a super-tanker and you get the idea. Good news is going to be hard to come by over the next 12 months. Bad news will be plentiful. Here are some predictions of the troubles that lie ahead for the economy no matter despite Obama's best intentions.
- Corporate bankruptcies -- Experts are predicting one of the biggest waves of corporate bankruptcies and restructurings in years. Already, Circuit City Stores Inc. (OTC: CCTYQ) has bitten the dust and the year is just getting started. Loads of retailers who are already operating on the razor's edge of profitability may be pushed over the edge. I doubt that enough credit will be unlocked by government fiat to address this problem.
- Trade deficit -- The trade deficit is a good news bad news situation. The good news is that it fell in November by the biggest amount in 12 years. Unfortunately, the reason why it fell is that the economy plunged as consumer spending fell. Any change in the balance of trade is unlikely going to happen this year.
- Bank nationalization -- In light of the financial lifeline given to Bank of America Corp. (NYSE: BAC), Reuters and other media outlets recently asked whether the U.S. was set to nationalize the banking sector. The allure of such a move is tempting, particularly considering what would happen if another large money-center bank went Chapter 11. No one would provide it debtor-in-possession financing, leaving the government as the lender of last resort. Remember what happened when Lehman Brothers was allowed to fail? The results were disastrous
- Unemployment -- Economic advisor Larry Summers predicted yesterday that Obama would keep unemployment under 10%. Good luck with that. I will not be shocked if this prediction comes true. One beneficiary of the record joblessness is the military, according the New York Times.
- Housing -- The housing market will continue to suck wind for the rest of the year. Housing starts were at a record low in December. Housing prices will continue to fall because builders overbuilt, lenders doled out money to uncreditworthy borrowers and people used their homes as an ATM.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
1-19-2009 @ 8:17PM
CHOPS said...
JUST WHO IS JOHN BERR? JON, TAKE AN ECONOMICS COURSE!
1. IN OUR CAPITALIST ECONOMY "ONLY THE STRONG SURVIVE" SO BETWEEN CIRCIT CITY AND BEST BUY WHICH EVER ONE QUITS FIRST LOSES. THE WINNER GETS THE CUSTOMERS OF BOTH STORES AND WILL SURVIVE.
2.I AM REAL;Y JUST GUESSING HERE I KNOW I SHOULD LOOK IT UP BUT HEAR SUCH THINGS IN THE NEWS-THE DOLLAR HAS LOST A LOT OF PURCHASING POWER IN THE WORLD IN THE LAST 12 TO 18 MONTHS. NOW THAT IS SIGNIFICANT IN A NUMBER OF WAYS. ONE, OUR GOODS BECOME CHEPAER FOR OTHER COUNTRIES (SO THEY BUY MORE), AND TWO, THEIR GOODS BECOME MORE EXPENSIVE. NOW IN THE SECOND PLACE THE FACT THAT OUR DOLLAR IS CHEAPER MEANS WE HAVE TO PAY MORE FOR THEIR GOODS. WELL PEOPLE DON'T LIKE THAT, AND PEOPLE ARE SHIFTING TO INTENTIONALLY LOOKING FOR GOODS TO PURCHASE THAT ARE MADE HERE OR IN COUNTRIES THAT WE FAVOR.
3.BANKS NEEDED THIS WAKE UP CALL. WE LET DEREGULATION GO TOO FAR. THIS IS THE PROCESS OF REIGNING IT IN.
4.UNEMPLOYMENT WILL LEVEL OFF OR EVEN SUBSIDE BY THE END OF SUMMER BECAUSE OF THE INFRASTRUCTURE PROJECTS THAT NEED TO BE CRAMMED THROUGH AND ALL THE DOLLARS THEY HAVE COMMITED TO THAT GOAL.
5.I AM HOPING THAT THE SPECULATORS WILL REALIZE HOW MUCH MONEY THEY LOST IN THE HOUSING B&B THIS TIME WILL BE FRESH ENOUGH IN THEIR MINDS TO RESIST THEM TRYING TO BLOWING IT UP AGAIN, AND WE SHOULD HAVE REGULATION AND OVERSIGHT IN EFFECT TO CURTAIL IT. BUT I NEVER UNDERESTIMATE THE POWER OF GREED.
AND MY NUMBER 6.THE SAME WIT THE STOCK MARKET. HOPEFULLY THE GREEDY PEOPLE WILL UNDERSTAND THAT STRETCHING TAHT COLLECTIVE P/E TO THE OUTER LIMITS WILL PUT US ALL IN THE "OUTER LIMITS" MAYBE EVEN THE TWILIGHT ZONE.
1-19-2009 @ 10:39PM
Mike O said...
Anyone want to hedge bets on how long until Rush and Hannity start blaming Obama and the Dems for everything that's going wrong?
1-20-2009 @ 6:14AM
Pat M said...
1-19-2009 @ 10:39PM
Mike O said...
Anyone want to hedge bets on how long until Rush and Hannity start blaming Obama and the Dems for everything that's going wrong?
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And if we implement an 850,000 Billion bailout (which I understand will not really help anything except to get us even further in debt) using deficit spending and faith in the economy does not return, just whose fault will it be. Don't say Bush cause he isn't the one who forced the banks to take faulty loans which is what started all this. The rest of us who were in houses we could afford are still in them in spite in the drop in housing prices!
1-20-2009 @ 1:05PM
Ellen said...
I can't think of anything worse than not doing enough to save our country. There were many people who are guilty of why this all happened. Esp, the damn banks who allowed people to use there homes as ATM, gave mortgages to people who could never afford them and then the ones to screwed up the banking systems and tanked all our investments. I'm not a dreamer , I didn't vote for this man ,BUT now that he is our President He deserves a chance. And to God almighty we must pray. :")amen
1-29-2009 @ 9:48PM
adonsgolf said...
I would love to know why we are putting billions
in social programs and road building when the
culprit behind this whole melt down was housing.
Why can't housing be propped up and let this
country move on. Giving banks money was not
the answer. Toxic loans need to be taken over
and dealt with. Regulations need to be tightened
and enforced on the banks and wall street.