Matrix Markets: USA Economy Update (Review, Video) Recovery Is Faltering: "What Do We Do Now?"

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USA Economic Uncertainty

Panel Discussion on the USA Economy Charlie Rose discussed the status of the USA economy with:

● Jared Bernstein of The Center on Budget and Policy Priorities, former Economic Policy Advisor to Vice President Joe Biden

● Paul Krugman of the New York Times, 2008 Nobel Prize in Economics

● David Walker of Comeback America Initiative, former Comptroller General of the United States

● Ken Rogoff of Harvard University, former International Monetary Fund Chief Economist

This short review is to outline the basic points. The discussion was disjointed at times, revealed differing opinions as to economic solutions, and was 36:38 in length.

USA Economic Recovery Faltering Charlie Rose began the discussion by summarizing some economic news:
1) Jobs gains in May 2011 were below expectations at +54,000 and the smallest gain in 8 months
2) Unemployment rose in May 2011 from 9.0% to 9.1%
3) High gas and food prices have decreased consumer spending
4) Natural disasters in Japan have hurt manufacturing
5) USA house prices have dipped to lowest level since 2002

USA Debt Ceiling All agreed the debt ceiling must be raised.

Solutions to USA Economic Problems "What Do We Do Now?"
1) More Fiscal Stimulus and therefore Borrowing - For (Bernstein, Walker, Krugman) Against (Rogoff)
2) Structural Reform (tax reform, infrastructure, education, etc) - All (Walker, Rogoff, Krugman, Bernstein) agreed to some variation of structural reform and concomitant spending
3) Payroll Tax Holiday/Credits - For (Bernstein)
4) Extended Unemployment Benefits - For (Bernstein)
5) Mortgage Debt Relief - For (Krugman, Rogoff, Walker, Bernstein)
6) Continued Agressive Monetary Policy by the Federal Reserve, including another round of Quantitative Easing - For (Krugman, Rogoff, Bernstein)
7) Numerous tax reform ideas were discussed

Paul Krugman There really never has been an economic recovery. Jobs have not recovered. USA not in a recession but not in a recovery. Defining the Debate: high unemployment.

Jared Bernstein There is a recovery underway but not strong enough. Economy not growing strong enough to meet basic job and income needs of working families. Defining the Debate: jobs deficit and budget deficits.

Ken Rogoff Very slow recovery. Doesn't think a strong recovery is going to happen anytime soon. Will take some time to work out of this. Defining the Debate: trajectory of the USA debt and structural reform.

David Walker Short-term challenges (tax law changes uncertainties, financial crisis, housing crisis, credit bubble) versus long-term challenges (investment in research and development, infrastructure, education). Will come out this summer with a specific framework of action for USA economic problems. Defining the Debate: jobs for today and jobs for tomorrow plus structural reform and mortgage debt restructuring.

Charlie Rose: Economy Update Economy update with Jared Bernstein of The Center on Budget and Policy Priorities, Paul Krugman of The New York Times, David Walker of Comeback America Initiative & Ken Rogoff of Harvard University.

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Conclusion Overall, Krugman, Bernstein, Rogoff, and Walker agreed in general that structural reform is needed. However, each had their own version of what that reform should consist of. This reform could include tax reform and investment in infrastructure, education, and research and development. All did agree that the debt ceiling has to be raised, now is not the time for drastic cuts in federal spending, and a long-term plan to cut federal deficits and balance the budget is necessary. All appeared open to additional quantitative easing by the Federal Reserve, although Walker didn't think this would happen. Krugman and Bernstein are for significant additional fiscal stimulus, and more borrowing, with Walker agreeing in moderation and Rogoff against. All agreed there are not, and will not be soon, enough jobs for Americans.

As a background clarification and for additional perspective, Bernstein and Krugman are more liberal, Walker is moderate to conservative, and Rogoff is more conservative.

Our conclusion is that because of the current political climate, Congress is unlikely to take any significant action to assist the USA economy unless a double-dip recession is imminent or actually occurs. From a broader, global perspective, our current identified concerns are:

Global and USA Uncertainties

1) First concern for weeks has been high oil prices resulting from the Libyan revolution and other Arab uprisings creating now actual plus additional potential supply disruptions. U.S. crude and Brent crude closed the week ended June 3, 2011 at $100.22 and $116.05, respectively. Persistent higher gas prices have become a drag on USA and Global economic growth.

2) Second concern is now the deteriorating USA economic data. This appears to be mostly the result of the first concern, persistent higher oil prices. Consumer confidence remains at historically low levels, the unemployment rate continues high, the USA economy is not generating an adequate number of jobs, and the recovery has slowed significantly. A double-dip recession is possible, but still does not appear probable.

3) Third concern is the catastrophic earthquake and tsunami that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the negative economic impact of this ongoing crisis and possible global implications have begun to show in economic output both for Japan and on the worldwide economy. Japan is officially in a recession as of the quarter ended 3-31-11 with a negative GDP for 2 consecutive quarters.

4) Fourth concern is now the USA funded debt of $14+ trillion and the heated political and social debate. The S&P cut the USA to a long-term negative outlook for sovereign credit and now Moody's has warned the USA to resolve the debt ceiling political deadlock or a short-term negative outlook rating is imminent. In addition, if spending is actually cut by any material amount, this will negatively impact the economy (and already has), rightly or wrongly, regardless of political beliefs.

5) Fifth concern is the EU sovereign debt crisis, which waxes and wanes in its effect on equity and credit markets. This problem is chronic, systemic, and therefore a long-term issue.

6) Sixth concern, a medium-term and long-term uncertainty, is the growing demand by emerging national economies (e.g. BRIC) for commodities, including oil, which then increases prices for governments, businesses, and consumers worldwide.

7) A Seventh concern is the Federal Reserve policies and the end of quantitative easing (QE 2) as the June 30, 2011. The Fed is ceasing most monetary intervention and support for the second time since the Financial Crisis in the autumn of 2008. The extent of this impact, much debated, will be seen later this summer. Hopefully, the negative impact will be minimal and then can be removed as a concern.

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