James Pethokoukis

More 2010 forecasts

December 29, 2009

Here is an interesting one from MF Global fully adopting the New Normal mantra:

On debt:

The IMF predicts that in 2010 the average government gross debt as a percentage GDP for the 7 major advanced economies will be 109% and 113% in 2011. It was only 84% in 2007 and 77% in 2000. Following the global down turn in the 1990s, average gross debt as a percentage of GDP increased from 58% in 1990 to 80% by 1996. History suggests that post recession, the reduction in government spending is rarely equivalent to the increase catalyzed by the retrenchment in the private sector. Given the breadth and depth of this past recession and lingering risks in the system, the pull-back in government spending will be even less. Moreover, the initiatives of the US government are costly and the passage of the healthcare bill will only increase the financing needs. As the global recovery takes hold it will be increasingly difficult for governments to attract interest in their securities as their yield reside at historic lows. Outside of valuation, fears over defaults will also keep the market wary of government debt. Widening sovereign CDS spreads underscore the market’s already elevated concern. While a widespread tidal wave of defaults is unlikely, poor auction demand in the wake of the recovery and in the face of heavy financing needs will increase trepidation about its possibility.

The new Washington Consensus: taxes, taxes and more taxes

December 29, 2009

This depressing WSJ article outlines some possible solutions to America’s long-term fiscal problems:

One more reason why 2011 looks bad

December 28, 2009

Interesting analysis from Deutsche Bank, especially the last part which I put in bold (via Econbrowser):

Paul Krugman and the New Normal

December 28, 2009

Paul Krugman makes his case for the New Normal:

1) Earlier recessions were preceded by sharp rises in interest rates, as the Fed tried to choke off inflation. This produced a housing slump, with a lot of pent-up demand; when the Fed decided that we had suffered enough, it relented, and both housing and the economy sprang back.

Goldman Sachs still believes in the New Normal despite rosier growth forecast

December 15, 2009

Goldman Sachs has boosted its 4Q GDP outlook to 4 percent from 3 percent, yet continues to believe in the gloomy New Normal. Here’s why: