Economy: ‘Positive, but subdued’


Well, Mr. Obama and Mr. McCain, let’s hear it.

Let’s hear your spiels for turning the U.S. economy around. Tell us your platform for staving off recession and bringing the mortgage lending and housing construction industries back to life. Lists your energy plan, your tax and spending priorities.

Out economy is on the brink of a breakdown and you’d better come up with something good.

The U.S. economy is grinding down and here are the numbers: Real GDP growth was just 0.6 percent in the last quarter of 2007 and inched up to just over 1 percent in the first quarter of this year. Experts say we should be at 2.5 percent.

We’ve lost 400,000 jobs in the first six months of this year alone, and the low of 4.4 percent unemployment in March 2007 grew to 5.5 percent today.

Thomas Hoenig, president and CEO of the Federal Reserve Bank of Kansas City, lists why the growth isn’t happening: First, the housing construction slump is in its third year. Second, higher energy prices put the brakes on consumer spending, especially for cars. Third, the collapse of subprime mortgage lending triggered a tightening of all available credit.

There is good news, Hoenig says. The weaker dollar made exports of U.S.-made goods zoom higher. And federal, state and local government spending remains steady.

Putting the good with the bad, the economist expects “positive but subdued growth” the rest of the year.

Hoenig is less optimistic, however, that inflation measures will hold the line. Oil prices have more than doubled over the past two years and that pressure is hitting everyone hard.

Many readers are too young to recall the rise in inflation rates to double-digit levels in the late 1970s. Many are not. It wasn’t pretty.

Are today’s increases in energy and food prices leading us down the same path? Not necessarily. They are only part of an economic environment that includes monetary policy, and Hoenig says that environment is a lot different than it was in the ’70s.

Inflation was entrenched in the economy back then, he said, and the Fed kept interest rates too low for too long. Today, inflation has been low and consumer spending hasn’t pulled back as much as experts expected.

With that said, however, it will probably get darker before the next economic dawn.

That’s why we need to hear from our presidential candidates with more substance than rhetoric. As uninspiring as it may be, perhaps monetary policy should get more headlines than tax policy. After all, Alan Greenspan didn’t become a household name just by marrying TV reporter Andrea Mitchell.

Give us some reassurance, Mr. Obama and Mr. McCain, that you and your advisers have a plan.


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