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Some contrarian news. Optimism is still alive..

July 17th, 2008 · 1 Comment

Not everybody is swayed by the extraordinarily difficult economic circumstances in the US, apparently. Some contrarian views..

Some of the economic problems of our day:

  • The financial system is in severe strain, making credit much more difficult to get
  • The housing market is in severe slump, destroying wealth and jobs
  • Inflation is at highest levels in two decades
  • Consumer confidence is almost at the lowest levels recorded
  • Economic policy is also severely strained, interest rates cannot be lowered because of the inflation problem (and lower interest rates will not do a whole lot in jolting banks to increase credit again anyway), budgetary policy can hardly be more expansionary, the deficit would balloon even more

Now, all this hasn’t impressed Barclays’ Chief U.S. Economist Dean Maki. In fact, he argues almost exactly the opposite:

  • Things are picking up, not slowing down. It looks as if growth is actually picking up in the second quarter.” “We think that will be sustained into the third quarter.”
  • Consumer spending is picking up, Maki points out, and while some of that is due to the tax stimulus, part of it preceded the stimulus check mail out.
  • “We’re also seeing business investment spending pick up,” Maki notes, “and trade is making a very significant contribution as well.”
  • “Right now, incomes are rising at the fastest pace in 33 years, and that’s precisely because of the tax rebate checks,”
  • Maki said that financial market strains in general will keep the Fed in “too easy a state of policy for too long.” “That’s a real risk here,” Maki observes.

It’s good to know some contrarian views, but we’re not terribly persuaded. For instance, take that claim that “incomes are rising at their fastest pace in 33 years.”

Well, for a start, that’s temporary, the rebate is a one-off. And we don’t think real incomes are rising at their fastest pace in 33 years, inflation is seriously eating into spending power, and this is not the climate for big nominal wage increases as a compensation.

Exports is a bright spot due to the falling dollar, but Europe and Asia are also slowing down, so it remains to be seen for how long this can be the case.

Tags: The Markets

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