Happy New Year? Reviewing Economic Forecasts

Dallas Federal Reserve President Richard Fisher delivered a speech in mid-December.  While acknowledging that according to Economist John Kenneth Galbraith,  “the only function of economic forecasting is to make astrology look respectable,” Fisher nevertheless reviews the 

The good news:  

• Businesses’ cash flow is at an all-time high, both absolutely and as a percentage of GDP;
• Access to capital is widely available and attractively priced;
• Financial institutions have excess liquidity.  

The bad news:

• We need to reduce unemploment, create jobs and put people back to work.
• Low interest rates and "monetizing the government's debt" are not enough to achieve this goal.
• Uncertainty in Europe, slowing growth in emerging economies like China and Brazil, and concerns about capital surcharges and other regulatory issues lead to caution.

As Fisher says,  "No matter how much cash you have on your balance sheet, or how compliant your banker might be, or how cheap the cost of money, you will not commit substantial capital to expanding your payroll or investing significant amounts to expand plant and equipment until you know what it will cost you to run your business; until you know how much you will be taxed; until you know how federal spending will impact your customer base; until you know the cost of employee health insurance; until you are reassured that regulations that affect your business will be structured so as to incentivize rather than discourage expansion; until you have concrete assurance that the fiscal “fix” the nation so desperately needs will be crafted to stimulate the economy rather than depress it and incentivize job creation rather than discourage it; or until you are reassured that the sinkhole of unfunded liabilities like Medicare and Social Security that Republican- and Democrat-led congresses and presidents alike have dug will be repaired so that our successor generations of Americans will prosper rather than drown in dark, deep waters of debt."

Link to Speech:  http://www.dallasfed.org/news/speeches/fisher/2011/fs111216.cfm

(ag) Jan. 2, 2012, in Economy