These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
In November, the Federal Reserve will likely launch a second round of quantitative easing but don’t expect “QE2″ to make big waves. The failure of the Group of 20 finance ministers’ talks permits China to continue to subvert Fed efforts to rekindle U.S. growth.
More Fed purchases of Treasury and mortgage-backed securities would drive down borrowing costs and, it is hoped, boost business investment and home purchases. However, big corporations are already flush with cash and mortgage rates are near record lows, and the potential benefits from additional monetary promiscuity are limited.
U.S. businesses lack customers, and even zero interest rates won’t inspire General Electric Co. (GE) to build factories and add workers if light bulb sales are stagnant. Without more jobs, prospective homebuyers are too nervous to quit renting or purchase bigger homes.
Moreover, China’s export-oriented development policies and undervalued yuan subvert the impact of U.S. monetary policy on the demand for U.S. products, and U.S. investment, hiring decisions and housing markets.
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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
Friday, the Commerce Department will report estimated first-quarter gross domestic product growth. The consensus forecast is for a 3.5% increase, further confirming the end of the recession and that the recovery is moderate and disappointing.
Unemployment will hang above 8% or 9% well into 2011, and most workers will continue to face a tough job market and declining living standards.
This recovery is decidedly anti-middle class. Wages will not keep up with rising prices, health care premiums and taxes. A good deal of the gains, so far, are going to Wall Street and the medical and intellectual property industries.
At 5.6%, fourth quarter GDP growth was pumped up by a slower place of inventory drawdown–in the arcane world of GDP accounting a slower pace of depletion adds to growth. Although the inventory rebuild has begun, the pace is slow, reflecting tepid sustainable demand for U.S. goods and services.
Adjustments to inventories accounted for 3.8 percentage points of growth. Demand for U.S.-made goods and services–the key to sustainable growth–added only 1.8 percent to growth. Domestic demand–less a bump in net exports that is not likely to be sustained?added only 1.5 percent.
Backing out the inventory adjustments, real GDP increased about $150 billion the second half of 2009 after bottoming in the second quarter–just about the amount paid out on Wall Street for 2009 bonuses.
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Tags: China, General Comments, President Obama, U.S. Economy, Unemployment
