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Starr thinks the recession will hit its trough in the summer of this year, but unemployment will continue to grow into early 2010, eventually hitting 10 percent or above. Because the National Bureau of Economic Research, arbiter of when a recession begins and ends, says the downturn began in December 2007, this will be the longest post–World War II recession. “The good news is that Federal Reserve and fiscal policy will be on the case, working to generate that recovery.”

And deflation? Starr says it is mainly commodities deflation now (largely energy) “and will run its course in the next couple of months. A year from now we will be talking about moderate inflation of 1 to 3 percent.”

Everybody will be happy — just like those who are saved by Viagra.

Warning: Viagra doesn’t work every time.

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Comments

Fred Williams Jan. 8, 2009 @ 7:42 a.m.

Erecting our financial system took decades, and now that we've reached three bubbling climaxes in a row it's time to come back to our senses.

Have we been doing it unprotected all this time? Maybe we've got some nasty infection...

Certainly, after shooting our wad of cash, this flaccid nation requires a little breather...time to recover our potency.

No matter how much the Fed tries to coax and stroke us back to a firm standing, we just don't have it in us to rise to the occasion.

After popping so much economic Viagra in the last few decades, we're spent...deflation is more likely than inflation for now.

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Don Bauder Jan. 8, 2009 @ 10:53 a.m.

Response to post #1: I believe the recession will last into 2010, but not become a depression (3 straight years of recession). Why? Because consumers are doing the right thing: they are not buying and are building up their savings. That will cause pain in the short run (consumer spending is more than 70 percent of the economy), but the cumulative savings will help us beat this in 2010. But I worry about inflation once we have conquered deflation. The Federal Reserve's balance sheet is in tatters; it is printing money at a frenetic pace. Best, Don Bauder

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ronaldi Jan. 11, 2009 @ 2:19 p.m.

Regarding Don Bauder's Story - Will the Horse Drink?

I agree with the opinion that we not only have a Credit Problem, but we also have a Debt Problem. In addition to that, I also believe that the U.S. has a Job Problem and a GDP problem.

How did this happen? First we shipped our manufacturing over seas for the purpose of cheap labor. This enabled corporations to reduce the unit price of their merchandise, so businesses such as WallMart would continue to purchase them and sell them at lower prices. It kept the ball rolling. People bought on credit, and big business
and stock holders made more money.

The next step was to lower interest rates and reduce financial oversight, so people could refinance their homes and purchase the big ticket items: Flat Screen TVs and new Cars. When the refinancing slowed down, homes were sold to people who could not afford them. I just love the term "Stated Income".

While all this was going on, our illustrious leaders (Executive branch, Congress and Regulators) turned their heads the other way.

Everything was done to line the pockets of the rich and powerful in the "short run". Everyone ignored the "long run" ramifications.

So when everything went to heck, what did we do? Mr. Treasurer (Henry Paulson) threw money to the institutions that were most responsible for this mess - the Bankers.

Quite frankly, I don't trust any of these guys, and I think that the U.S. is in for an extended downturn. If the government feels the need to pump money into the economy, I would like to see it directed to industries that will create jobs, bring back manufacturing and generate "long term" benefits for the U.S. Infrastructure and Health Care are my first two picks.

I still have a problem trusting the same bozos to distribute
money appropriately. This is where the new administration comes in. Can Obama and gang get it done? I have a lot more faith in them than I had in the Bush clan; however, the proof is in the pudding.

Good luck to everyone in 2009.

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Don Bauder Jan. 11, 2009 @ 6:11 p.m.

Response to post #3: Yes, we have a debt problem more than a credit problem. We consumed more than we produced and borrowed the difference from abroad while we were sending jobs there. It was bound to crash. Economists who never saw the problem developing -- incredibly -- are now trying to get consumers to borrow and spend. But consumers, thankfully, are flipping them the bird. The consumers want to build their savings back up. That will cause pain in the short run, but is the only cure. And you are right: by throwing money at the banks and insurance companies, the government was making the mistake Herbert Hoover and the Japanese did. The money should have gone into thwarting foreclosures. But the authorities tried to pump up the Wall Streeters because they believed that derivatives would explode in a chain reaction, spreading havoc. But why had they not figured out that could happen before it did? These are the same people who argued strenuously, and successfully, against regulating the derivatives. They should be retired from public life. Alas, they are high up in the current administration as well as the one coming in. Best, Don Bauder

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Don Bauder Jan. 12, 2009 @ 7:52 a.m.

Response to post #5: The government and Federal Reserve are definitely trying to reflate. The U.S. is in a debt deflation. The only way out is inflation. Best, Don Bauder

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Twister Jan. 30, 2009 @ 10:01 p.m.

Last month I got this insane email from some lunatic who suggested that if the gummint handed out the $750 billion to every citizen over age 18, that most of the money ($300,000 and change each) would go directly into the economy's arteries and pump up the heartbeat of the nation (presumably literally and figuratively)and it would fly into banks and stimulate rampant spending. It would still end up in the pockets of the of the Worthy Gentlemen and Ladies at Court, and soon fatten them up to the megaton realm.

Shouldn't such heretics be burned at the stake? How DARE they suggest such a stupid idea? What I fear the most is that this idea will be emailed all over the country and We, The People will rise up and deman that it be done.

When you overpay bozos who strangle the Golden Goose (the consumer) you must be doing something right, eh? I'm glad I don't have any grandchildren. If you can't trust your banker, your broker, and your financial advisor, whom can you trust?

The first comment is a work of art.

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Don Bauder Jan. 31, 2009 @ 9:12 p.m.

Response to post #7: Yes, the first comment is a work of art -- one of many by Fred. Tragically, one of the causes of our current downturn is excessive consumption and concomitant excessive debt. So heretics like your email correspondent want consumers to go back to overspending and overborrowing. The only way the U.S. will get out of this mess is for consumers to cut back spending for a significant period and build up savings. Once they have the savings, the economy can recover again. This will bring pain in the interim. But it will be a road out of the muck. Trying to pump things back up now will just dig us further into the slough. Best, Don Bauder

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Fred Williams Feb. 2, 2009 @ 6:33 a.m.

Re: 7 and 8, I'm gratified that my artwork is appreciated.

Inflation vs. Deflation:

I see asset price deflation coupled with consumer price inflation, which with falling or stagnant incomes is going to squeeze the middle and lower classes very hard.

As Don points our, 70% of our economy is the equivalent of "taking in each other's laundry". Most of our nation's work doesn't really "make" anything...we're paid for being in the middle.

Those industries that DO produce real tangible goods that the rest of the world wants to buy should do well...except for one major problem.

The Fed and Treasury is borrowing other country's savings in a vain effort to re-inflate our domestic consumption bubble. So our foreign friends and trading partners don't have the available money, or a stable enough currency, to buy our real goods.

So, if you want a global macro-economic stimulus try this strategy:

Lend $850 Billion to OTHER nations so they can use it to stabilize our currencies and buy what we produce.

Best,

Fred

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JohnnyVegas Feb. 2, 2009 @ 11:28 a.m.

I believe the recession will last into 2010, but not become a depression (3 straight years of recession). Why? Because consumers are doing the right thing: they are not buying and are building up their savings. That will cause pain in the short run (consumer spending is more than 70 percent of the economy), but the cumulative savings will help us beat this in 2010.

Good post. There is no way we are beating this in 2009, out of the question. In fact with the job losses going up we are going to see MORE foreclosures, and that in turn will keep the chaos running throughout the financial system.

Only when we get the employment scene stabilized will we begin a recovery.

For jobs to become stabilized and for job growth, we need to drill into our elected leaders heads exactly what ronaldi has clearly stated- manufacturing/production of goods is the ONLY cure for our economic chaos.

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Don Bauder Feb. 2, 2009 @ 5:25 p.m.

Response to post #9: Beginning with the Reagan administration, the strategy was to have asset inflation (stocks, real estate, commodities) and not inflation of goods and services. People would be happy. But what Alan Greenspan did not fully realize that asset bubbles burst and cause severe unhappiness. He didn't even realize it after the 2000-2002 bear market in stocks. He created a second real estate bubble, and congratulated himself as the people basked in the faux wealth. But he never saw that unregulated and even unmonitored derivatives based on falsely valued real estate assets would cause grievous pain when the bubble burst. He was not alone in not foreseeing the consequences: Paulson, Bernanke, Summers, Geithner and almost everybody did not see what was coming. And look where they are now. Best, Don Bauder

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Don Bauder Feb. 2, 2009 @ 5:29 p.m.

Response to post #10: Right on: I will repeat it again: for decades, we consumed far more than we produced, borrowing the difference from foreign countries as we were sending jobs overseas. And today's leaders didn't see it then and are keeping their mouths shut now, partly because the press isn't putting the questions to them. Best, Don Bauder

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