James Pethokoukis

Politics and policy from inside Washington

Goldman Sachs 2011 forecast would be an absolute disaster for Dems

Dec 3, 2009 00:32 UTC

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.

COMMENT

If GS Said they were Lying I wouldn’t Believe Them!

Posted by tmajor | Report as abusive

Bernanke goes to Capitol Hill

Dec 2, 2009 20:19 UTC

The Bernanke confirmation hearing should be a great show, especially after BB’s “speaking truth to power” WaPo op-ed where he went all Michale Corleone on Fed critics: “Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the Fed audit bill, which I would appreciate if you would kill personally.”  Former Feddies are split on whether that was the right move or if he should have been more conciliatory ….

COMMENT

15 must-ask questions for Bernanke:http://cunningrealist.blogspot. com/2009/11/rewarding-failure.htmlhow about reading these verbatim in the hearing??

Posted by Michael | Report as abusive

So goes Australia on cap-and-trade ….

Dec 2, 2009 19:52 UTC

This is one piece of non-Hugh Jackman news that is resonating in Washington:

CANBERRA (Reuters) – Australia’s parliament rejected laws to set up a carbon trading scheme on Wednesday, scuttling a key climate change policy of Prime Minister Kevin Rudd and providing a potential trigger for an early 2010 election.

Acting Prime Minister Julia Gillard said the government would re-introduce the carbon trade bills in February to give the opposition Liberal Party one more chance to support the scheme, adding the government was not looking at an early election.

COMMENT

I guess they’re skeptical about evironmental scares after that hole in the ozone turned out to be no big deal.

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