LyrArc Article Gist
Complacency from the Bush Administration reflected in the remarks of Edward Lazear the Chairman of the Council of Economic Advisors in the outgoing Bush administration. He sees no recession in the USA. "I would be very surprised if the NBER looking back at this period would date this as a recession" is what he is quoted as saying to reporters. He went on to say that the $152 billion stimulus of government checks mailed to the people, and Fed interest rate cuts should make the second half of the year a "solid growth period." What this means is that the moves by Congress to help homeowners stave off a new wave of foreclosures through a bill that just passed through Congress on May 7, 2008, is likely to be vetoed by Bush and efforts along the lines suggested by Martin Feldstein, Chairman of Council of Economic Advisors under Reagan, and Sheila Bair at FDIC, to help homeowners avoid foreclosure in her proposal may remain just that as proposals. This situation is likely to be turned over to a new President and make for an election that may revolve around economic issues, as the next wave of foreclosures lead to the start of a declining spiral in home prices leading to further loses in the credit markets and corporate bankruptcies of weaker firms and resulting losses in employment. Rising crude oil prices may result in much of the stimulus being eaten up by paying of some of the debt burden of consumers and rising costs of gasoline at the gas pump. And Feldstein has been very vocal, as have others, about the ineffectiveness of interest rate cuts in the current situation, even doing an oped piece titled "Enough of Interest Rate Cuts." In this sense the current spell of calm in the financial markets may be deceiving, giving Paulson an others in the administration a false sense of hope, and deprive the world economy of some reasonable action to prevent the wave of foreclosures and falling home prices that could set things distinctly downward in the world's largest economy and impacting the rest of the world.