Goldman 2011 Forecast Would Be Disaster for Dems

James Pethokoukis Reuters December 3, 2009

This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation "“ close to zero on a core basis during 2011; and (4) a continuation of the Fed's (near) zero interest rate policy (ZIRP) throughout 2011.

That said we see risks that could upset these markets. On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening. In addition, surging asset prices and worries about a "bubble" could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds. On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.

The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War.

Assuming healthcare is passed that 10.75% unemployment looks a bit rosy.

Business is on hold until they have certainty on healthcare, cap and trade and card check. And that healthcare bill is a job killer.

[...] This post from James Pethokoukis at Reuters is short, to the point and worth two minutes of your time. He cites a Goldman economic forecast and provides some good political analysis as to its implications. [...]

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D… The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation "“ close to zero on a core basis during 2011; and (4) a continuation of the Fed's (near) zero interest rate policy (ZIRP) throughout 2011. [...]

9/11? Iraq War?

Nah, I think I’ll go with ’90s Russia but add a heaping dose of south-of-the-border state failure. The tax-cut folks will find they have a government small enough to drown in a bathtub and an economy to match once dollars are no longer accepted for oil.

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D…. [...]

The health care BILL is not a job killer. What kills jobs is the fact we spend twice the per cent of GDP on health care than any other advanced economy. That is what we do NOW. That is what will continue to get worse and kill our economy if we don’t fix it. Talk about crowding out investment. Talk about suppressing wages and consumption. The health care BILL will help to address this mess. If it doesn’t work perfectly we can scrap the whole privatized system we have now and do Medicare for all.

Health care bill not a job killer? You can not be serious. The health care industry was responsible for an astounding 56% of job growth from 2002 through 2006, it is the one industry in which we have a comparative advantage in the world, and one which is difficult to shift off shore (though that is starting). Both bills have amazing taxes upon medical device and pharmaceutical companies, do you think that if you tax a pacemaker, the pacemaker pays the tax? If not the pacemaker, then who? You’ll say the pacemaker company. Well then, that means the cost of producing pacemakers goes up, and less are being used; so lets lay off people who work for pacemaker companies…..

No one should be deluded into thinking that the health care bills being kicked around congress will in any way improve our well-being as consumers and patients.

Tom

If I’m reading this right, you’re slant is that with all this dismal outlook, a different ‘party’ - who similarly don’t have a clue - will be in power. Six one way, half dozen the other. I think that reading the GS statement and turning it into politic ammo is exactly what is wrong with the entire American media (which, of course, is immediately mimicked by the average Joe who doesn’t know any better.) Do us all a favour: come up with solutions, don’t just point at problems… and quite frankly, the GOP doesn’t have any ideas other than the magic of corporate tax cuts BARF! You could cut rates to zero and it wouldn’t change a thing - you need to make money to pay taxes in the first place, and the only way these corps are making money is by parking at the Fed till and cutting workers by 20%. Which is why an independent running for prez (and getting Perot-like numbers) is more likely than not.

To sum up, everything I’ve seen and read tells me that while green shoots and V-shape blahblah should cotinue until New Year’s, I’d expect the first quarter of next year to be the sharpest decline in GDP and equity markets of this recession. That would make Q2 the real make or break point, where either the slide is miraculously halted or America dips its toes into the abyss, preparing to plunge. And trying to spin this as a positive for the GOP is laughable.

[...] forecast predicts low growth rates of around 2.4% through 2011 with unemployment peaking in 2011.Close Forward this [...]

Pethokoukis is Happy…..

Let’s hope we can all keep our @$#! together until then…

[...] Optimistic? Stop reading now. Goldman forecasts unemployment peak mid-2011 at 10.75% - Reuters [...]

[...] this with Goldman Sachs’ forecast of the economic outlook: The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 [...]

It’s a permanent recession due to energy scarcties.

Enjoy, Enjoy.

This forecast may turn out to accurate. It may not. The only certainty is that the White House will continue to blame Bush no matter what happens.

Name (required)

Email (will not be published) (required)

Website

Anti-spam word: (Required)* To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.

James Pethokoukis is the Money & Politics columnist and blogger for Reuters where he covers the nexus of Washington and Wall Street.

Previously he was the economics columnist and business editor at U.S.News & World Report magazine. Pethokoukis is also an official CNBC contributor and appears frequently on that network's Kudlow Report, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS.

A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion. Pethokoukis can be reached at james.pethokoukis@thomsonreuters.com. James Pethokoukis Feeds Subscribe to all posts via RSS (What is RSS?) Recent Posts How Obama is freezing the job market Goldman Sachs 2011 forecast would be an absolute disaster for Dems Bernanke goes to Capitol Hill So goes Australia on cap-and-trade …. Corker: Bernanke confirmation may not be a done deal inflation healthcare reform cap-and-trade mustard seeds Timothy Geithner budget deficits budget deficit Lost Decade globalization 2010 election Long Recession green economics China Great Recession Obamanomics environment economic growth tax competition GM 2012 election national debt tax policy VAT stimulus economy Lawrence Kudlow the dollar Obama agenda financial regulatory reform recession economic policy global economy Ben Bernanke unemployment housing policy TARP gold Fed Watch Federal Reserve Ron Paul climate change bond vigilantes 2008 financial crisis taxes bond market Archives December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 Blogroll Bizzy Blog Calafia Beach Pundit Capital Gains and Games Econbrowser EconLog Enterprise Fundmastery Instapundit Kudlow’s Money Politics Power Line RealClearMarkets Say Anything The Everyday Economist

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

Read Full Article »

Comment

Show comments

Goldman 2011 Forecast Would Be Disaster for Dems

Related Articles