Happy New Year? Fat Chance, Say Some Economists
Today's roundup of stimulus coverage:
Economists are starting the new year with predictions of gloom for 2010. The Wall Street Journal's Michael S. Derby reports that Martin Feldstein, a Harvard economist, worries the economy "could run out of steam sometime in 2010." Feldstein, who is also emeritus president of the National Bureau of Economic Research, tied his concern to a stimulus package that "delivered much less" than its price tag suggested.
The New York Times' Paul Krugman is just as gloomy, worrying that upbeat employment and GDP numbers will push the Federal Reserve to prematurely tighten monetary policy, while making it even more difficult for the Obama administration and Congress to introduce a second stimulus package.
"Will the Fed realize, before it's too late, that the job of fighting the slump isn't finished?" asks Krugman. "Will Congress do the same? If they don't, 2010 will be a year that began in false economic hope and ended in grief."
Meanwhile, the Journal's Alistair Barr reports [$] that, according to some analysts, the winding down of the stimulus may cause the U.S. stock market to struggle in 2010. As government spending decreases, "a continued recovery in equities may have to be driven by earnings growth," Barr reports. But retailers and financial services, which have led the stock market out of previous downturns, are facing a hard year as consumers continue to suffer -- making government spending that much more significant. Andy Matthes, a portfolio manager at Matthes Capital in San Francisco, says that the scale of that spending "has been such that when the government tidal wave of spending recedes it will expose a consumer with organic consumptive demand far below what is needed to fuel an economic recovery."
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