Friday, January 30, 2009

A Slow Recovery

The economy is not going to turn around as quickly as in the past, because we are in a number of areas in much worse shape than we've ever been.

While many economists say the stimulus is crucial to replace a paucity of private spending and investment, they are concerned that the tax cuts in the Democratic plan will not be particularly useful, and that more effective spending proposals will take too long to put in place.


But it may be more difficult to pull the country out of this recession than the downturn of the 1980s, when the Federal Reserve helped stimulated growth by slashing interest rates. In December, the Fed cut its target overnight rates to a record low near zero percent, exhausting one of its key weapons.

“They’re running out of options,” said Ann L. Owen, associate professor at Hamilton College and a former Fed economist. “They’ve got the Fed funds rate down to basically zero. They’re talking about buying Treasuries. It’s not really clear what kind of effect they can have on the economy.”
Although the recession officially began 13 months ago, as the housing market soured and energy prices pinched consumers, the gross domestic product continued to grow slowly in 2008 until the third quarter, when it contracted at an annual rate of 0.5 percent.

By the way, there is something definitely wrong with the way they calculate those GDP numbers, because I find it very hard to believe that the GDP was still growing through the third quarter of 2008, if indeed the recession started over a year ago. For example, do they include in the GDP the rising cost of oil, which goes mostly to the oil exporting countries? If so, that would be stupid. Sometimes I think these federal economic numbers have been jerryrigged and don't really show the true picture.

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