What I don’t think people should do is suddenly stuff money in their mattresses and pull back completely from spending. I don’t think that people should be fearful about our future. I don’t think that people should suddenly mistrust all of our financial institutions because the overwhelming majority of them actually have managed things reasonably well.
During this New York Times interview the president sounded another upbeat note about the economy by suggesting that a surprising number of banks will pass so-called stress tests the Treasury Department is conducting to see if they could weather a prolonged and deepening recession.
When asked how soon he thought the US economy would turn around he said, I don’t think that anybody has that kind of crystal ball. We are going through a wrenching process of de-leveraging in the financial sectors – not just here in the United States, but all around the world – that have profound consequences for Main Street. It is going to take some time to work itself through.
Christina Romer, chair for the Council of Economic Advisors, was more specific in saying, Sometime in the second half of the year...I expect that's when we'll start to see positive GDP growth again and a little after that we'll start to see employment going up rather than going down.
In early February I wrote about three possible recession recovery scenarios: L U V, where a U-shaped recovery is quite pessimistic, V is optimistic and an L viewpoint has been held by many economic commentators.
Recently the Federal Reserve published the following chart. This shows a consensus view that we'll have a decline in GDP this quarter and in the 2nd quarter of 2009, and then there will be growth.
If you look carefully, the shape of this recessionary decline is a V.
If the consensus is correct, we have to tough it out four more months before entering the 3rd quarter. Let's hope they are right!
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