Kudlow: Maybe a V for 2010
Larry Kudlow gives the bull case:
I wonder if Mr. Bernanke isn’t underestimating the very substantial monetary stimulus that he has injected into the economy, going back about nine months. This is the Milton Friedman monetarist experiment. The Fed’s balance sheet has grown by over $1 trillion; various money-supply measures are running about 10 percent on average; the Treasury yield curve is very steep and positively sloped; and of course the target rate is near zero. Add to that $1,000 gold and a weak dollar.
We’re talking easy money here. It started last fall, and with a roughly six-to-twelve-month lag, it’s now beginning to impact the economy in a significant way.
So Mr. Bernanke may be underestimating a V-shaped recovery that will extend through 2010. And don’t forget that marginal tax rates are going up in 2011. That’s likely to mean — in supply-side-incentive terms — that many folks will bring as much income and investment as they can into 2010 to beat the tax hike. And that could add to GDP in a significant way next year.
Me: The second point is a good one, and one that is not being factored in.