California/National Economic Forecasts for 2011: Optimist #1

The California Forecast economic newsletter for January is out with “good news” for 2011. You can click through at the bottom.

Note: I had real trouble bringing up quotes from the newsletter, so I will paraphrase.

I put them in the optimist camp because although they note some of the key problems they seem to step around the landmines.

For example, they say that inflation is “under control.” Apparently they are making a narrow and technical argument based on the idea that consumer demand is improving but it hasn’t improved enough to generate inflationary pressure. That itself is heavily disputed, but today’s news that oil is nearing $100 a barrel and there are predictions of $5 a gallon gas negates that entire argument. High gas prices are super inflationary and wage killing. The cost of everything rises greatly because it is all shipped by truck. The value of your wages – already undercut by public and private debt – fall greatly. Very bad.

They make the argument that the housing crisis is “better” in California because prices seem to be stable except in the central part of the state and the picture is “improved.” They seem to imply it is returning to normal along the coast. They do not mention the appearance of fraud in both the housing and banking industries that implies severe overvaluation of houses. Of course, if gas does go to $5 a gallon, working and living habits will change almost immediately.

They also do some fancy dancing on unemployment. They argue that it is largely the result of having an increased number of graduates from high school and college. (?)That is an argument I haven’t heard made.  Most discussions I have read point to retiring Boomers and a falling birth rate. Some posit the stealth number of illegal workers who help swell the jobless figures.  I suppose it could be regarded as a simple spin: People aren’t actually unemployed, there are simply more people than there currently are jobs for. They do admit 12% unemployment is “troubling” and acknowledge it is usually lower at “this point” in a recession.  

They seem to be in the camp holding that what they call the “Great Recession” is over, many do not agree.

Finally, they squeeze the lemon and make the lemonade. The dollar is weak and getting weaker, they note, but that will merely help the balance of trade and will be good for us. I understand that a slightly weaker dollar does make American products more attractive. The see-saw does go back and forth. It can be part of economic give and take. But a seriously weakened dollar further devalued by high gas prices means we sell more products but get less in return. And have less to show for it.

I’m still a watchful pessimist camp.

Read the rest here:

http://www.californiaforecast.com/newsletter/January%202011.pdf

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