According to Levy, the financial outlook is grim...
levyforecast.org (under Press Releases)
A BUMPY ROAD AHEAD
Don’t Expect a Robust Recovery in 2002
Mount Kisco, NY - August 28, 2001 - The U.S. economy’s prospects in 2002 will be severely limited by unusual financial problems and overcapacity in the United States along with dismal economic and financial conditions abroad, according to the Levy Forecasting Center. "The chance of a strong expansion next year is remote", asserts the current issue of The Levy Institute Forecast.
At best, the economy will manage fitful growth, and there may well be periods of outright decline.
The Levy Forecasting Center has provided insightful analysis into the past two years’ economic performance because of its profit-centered, financially-oriented framework for macroeconomic analysis. From early 2000 on, The Levy Institute Forecast maintained that extraordinarily high private debt, soaring stock market values, business overcapacity, and global financial vulnerabilities would tend to turn a U.S. economic slowdown into a global recession with unusually serious financial problems. By autumn, this became a firm forecast, and now the evidence supporting this is overwhelming.
According to The Levy Forecasting Center, economic activity-and the sources of profits-have been heavily influenced during the past few years by (1) the inflation and subsequent deflation of the stock market bubble, (2) the unprecedented level of domestic private debt, and (3) the overextension of debt and business capacity in the global economy. "As a result, many recent economic developments cannot be explained by traditional business cycle dynamics", states The Levy Institute Forecast.
The Levy Forecasting Center emphasizes that bad financial news is appearing on several fronts. The most obvious bad news is the performance of the stock market. "The longer the market remains weak and the weaker it becomes, the more severe the negative wealth effect and darker the outlook for the coming quarters", notes The Levy Institute Forecast. While the stock market’s troubles unfold in broad daylight, other financial troubles such as falling loan performance and tightening credit standards are brewing in the shadows. In addition, economic conditions are deteriorating rapidly beyond U.S. borders. "Once the inevitable financial crises begin to escalate, the additional damage to U.S. exports, banks, markets, and general confidence will be severe", states The Levy Institute Forecast.
The good news is that the economy is beginning a long overdue debt consolidation process, which is necessary for healthier growth. Another bright spot: The Levy Forecasting Center places a 70% probability on seeing a 2% federal funds rate next year.
KJC |
