These facts seem inconsistent with significant overbuilding. Assets in the banking sector remain reasonably healthy, especially relative to capital, despite problems in particular sectors like telecommunications. Unlike the late 1980s as well, large government budget deficits are not crowding out private investment, or creating the need for fiscal austerity. Finally, of course, the economy now has 100 basis points of easing in the pipeline. This may help shore up confidence, creating some rebound in spending by both firms and consumers.
Recent signs are at least somewhat encouraging here.
Thus, in my view, the economy is likely to continue feeling the effects this quarter of a significant but relatively short-lived inventory correction. The correction is the result of an unexpectedly rapid adjustment toward more sustainable growth in demand. There are risks for sure, the level of private savings and the softness in domestic demand in many foreign economies, to name two. One of the major underpinnings to the decade of expansion in the '90s was the gradual decline, and eventual elimination, of the U.S. federal deficit. I don't need to explain the benefits of reduced government deficits to this audience.