From: rja@mahogany126.cray.com (Russ Anderson)
Subject: Re: Sixteen more years
Originator: rja@mahogany126
Organization: The 1991 World Champion Minnesota Twins!
Date: 15 Oct 92 14:43:39 CDT


In article <1992Oct15.175548.14707@magnus.acs.ohio-state.edu>, cthorne@magnus.acs.ohio-state.edu (Charles E Thorne) writes:
> In article <1992Oct14.135647.5914@hemlock.cray.com> rja@mahogany126.cray.com (Russ Anderson) writes:
> >In article <Bw0tDA.IJ0@apollo.hp.com>, nelson_p@apollo.hp.com (Peter Nelson) writes:
> >> In article <MATT.92Oct12103900@physics.berkeley.edu> matt@physics.berkeley.edu writes:
> >> >In article <1762@aviary.Stars.Reston.Unisys.COM> munck@stars.reston.unisys.com (Robert G. Munck) writes:
> 
> >> >> One of the things panicking the Republicans is the realization that the
> >> >> economy will almost certainly have turned around four years from now,
> >> >> independent of who is President and what he does.
> 
> >>   This is clearly NOT an ordinary recession with an ordinary cyclical
> >>   recovery; if it was we would have already started to see a major
> >>   turnaround by now!   Today's Wall Street Journal published another
> >>   economic consensus forecast showing only 2.7% growth next year with
> >>   some economists adding that if they were wrong then 2.7% is on the
> >>   *optimistic* side.   If this were an ordinary cyclical recession
> >>   then next year would be 5-6% GDP growth!
> 
> >I agree with both posters.  Economicly, GDP growth will be slow for the 
> >next few years.  Debt (both private and government) and a shaky financial 
> >system (with the FIRRA deserving much blame) will limit the amount of 
> >capital for both investment and consumer spending.  Politically, the 
> >Republicans will get the blame (even thought there is enough to go 
> >around).  Even 2+% annual growth (twice as much as under Bush) and 
> >slowly falling unemployment will be enough for the Dems to keep the 
> >White House in 1996.  (Remember that FDR kept getting re-elected even
> >though there was no real recovery until WWII.)
> 
> Assuming Clinton is elected President and that he gets some of his proposals
> through Congress (increased Federal health insurance programs, increased
> social services spending, increases to the economy, some minor reductions
> of defense spending, increases of middle income taxation) then the deficit
> will actually go up, investment (for jobs) will go down, inflation will go
> up--and we'll be calling Clinton the peanut farmer from Arkansas.

Two reasons I do not think inflation will go up (at least not more that 
2-3%) is:
   1) Carter figured out that expansionary monitary policy leads to 
      inflation (when G. William Miller was the head of the Fed) and 
      as a result put Paul Volker in charge of the Fed.  Clinton also 
      learned that lesson.  He's praised Greenspan several times for 
      keeping inflation down.
   2) Structural changes to the banking industry (ie increased capital 
      requirements) are holding down the the higher monitary aggregates 
      (M2, M3+).  Any structural changes will talke time to pass & implement.

Slow growth is likely, large deficits possible, but I doubt inflation
will increase much, if at all.

> >>   As I've been saying, we will almost certainly have to get serious
> >>   about the deficit in the next few years and once we do we're going
> >>   into a *depression* with double-digit unemployment and massive social
> >>   unrest.  (again, if anyone can make the numbers come out some other
> >>   way >please< post them to the net!!).  So I sure don't envy the Demo-
> >>   crats if Clinton wins.  
> 
> >While there is always opportunity for politicians to screw things up, I
> >don't see a 1930's type depression.  
> 
> If the foreign banks that are now buying U.S. debt drastically change that
> investment, you may see unemployment and inflation in the high teens.

That change (esp to Germany) is already happening.  I don't see the inflationary
part yet...

-- 
Russ Anderson    |  Disclaimer: Any statements are my own and do not reflect
------------------              upon my employer or anyone else.  (c) 1992
EX-Twins' Jack Morris, 10 innings pitched, 0 runs (World Series MVP!)
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