Economists Urge Congress Not to Rush on Rescue Plan

[D-Mack]

Sept. 26 (Bloomberg) -- More than 150 U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.

In a Sept. 24 letter to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson's plan because it's a ``subsidy'' for business, it's ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.

..

http://www.bloomberg.com/apps/news?p...z2Vws&refer=us

What do they know? Nobel Prize, pah



This guy says it will be fine

One Less Headache
Douglas Porter, CFA, Deputy Chief Economist

It may be thin gruel, but there is at least one positive
development amid the financial turmoil of recent weeks—
inflation is poised to melt, even if the U.S. rescue package
passes. While that may seem like small solace, it is a big
change from just two months ago when it appeared that
global policymakers were facing the very real prospect of
both a sharp slowdown and rising inflation. It was that very
combination of stagflationary forces which turned the
1970s bear market into the worst stock market downturn in
the post-war period, and a retreat in inflation would
remove at least one thorn from the side of policymakers.
This week Bernanke maintained that upside risks to
inflation were “a significant concern.” On the contrary, the
U.S. inflation outlook now seems uncomplicated—a sharp
slowdown in spending, the $40 drop in oil prices, milder
grain prices, a less-weak U.S. dollar, and restrained wage
growth all suggest that headline inflation is poised to ease
rapidly in the months ahead. Indeed, after dipping slightly
to 5.4% in August, U.S. inflation could recede to around 2%
by mid-2009, even under conservative assumptions for
food and energy prices (Chart 1). If commodity prices
continue to plummet at anything close to trends since midyear,
which saw the biggest two-month spill on record,
even lower inflation lies ahead. And, we do not view the
proposed TARP as a near-term problem for inflation—it is
an exchange of assets, not $700 billion of net new stimulus.

page 8
http://www.bmonesbittburns.com/econo...0926/focus.pdf

[Spartacus]

Re: Economists Urge Congress Not to Rush on Rescue Plan

What do they know? Nobel Prize, pah



This guy says it will be fine

Indeed, after dipping slightly
to 5.4% in August, U.S. inflation could recede to around 2%
by mid-2009, even under conservative assumptions for
food and energy prices (Chart 1). If commodity prices
continue to plummet at anything close to trends since midyear,
which saw the biggest two-month spill on record,

I wonder if any "deputy chief economist" wrote the same thing in the 1974 to 1976 Gold price lull?

[phirang]

Re: Economists Urge Congress Not to Rush on Rescue Plan

What do they know? Nobel Prize, pah



This guy says it will be fine

That wage-growth thing will continue to be an issue, especially with obama in office (unless robo-oligarch becomes prez, who will massacre proles without hesitation...)

Also, oil @ 100/bbl, last I checked, ain't cheap. Even if it "corrects" to 80/bbl, we're still up shits creek this winter.

[GRG55]

Re: Economists Urge Congress Not to Rush on Rescue Plan

What do they know? Nobel Prize, pah

Wasn't LTCM started by a couple of Nobel Prize winning economists?

This guy says it will be fine

"...If commodity prices continue to plummet at anything close to trends since midyear, which saw the biggest two-month spill on record, even lower inflation lies ahead.

And, we do not view the proposed TARP as a near-term problem for inflation—it is an exchange of assets, not $700 billion of net new stimulus..."

Not that it can't happen, but I find it astonishing that an economist would support his inflation outlook based on the expectation of an extrapolation of "the biggest two-month spill on record".

I am even more astonished that Paulson and Co. haven't properly explained to the US Taxpayers and Congress that the bailout plan is simply an "exchange of assets". If the $700 B's is not "net new stimulus" doesn't that mean it doesn't really need any net new funding? And if that is the case, then does that not mean there won't be any net new taxes collected to pay for it [from you, your children, their children, and their children's children]?

So what's the fuss about, eh? :rolleyes:

[sunskyfan]

Re: Economists Urge Congress Not to Rush on Rescue Plan

I think using the 70s as any guide for the current situation is a mistake. Most people forget that unions back then had real teeth and most production truly took place in this country. The 70s was about a long expensive war combined with great soctiety spending starting an inflationary impulse. Union contracted wages increases were coupled to the CPI and a vicious cycle started from this impulse.

Volker killed the financial side of it and Reagan killed the unions thus killing that inflationary period.

In the new economy there is no way to systematically increase buying power of the average joe through wage increase. The only way now is through increase in availablility of credit. That has now been tapped out.

The mapping of the credit markets and reality has been broken.

Modern capitalism has failed not because of it inability to generate positive economic activitiy but because of it inability to maintain relavance between the virtual trade space (Wall Street) and the every-day joe trade space (Main Street).

Ironically, the philisophical decendants of Ronald Reagan and the guys who created modern capitlism in the early 80s are the ones who get that the bailout won't reconnect Wall Street back to Main Street. The double irony is that what they want is just more of the same thing that broke the coupling in the first place.

[D-Mack]

Re: Economists Urge Congress Not to Rush on Rescue Plan

Wasn't LTCM started by a couple of Nobel Prize winning economists?

I guess if Kissinger and Gore can get it for peace, anything can happen.