Greenspan: Recovery to take longer

By Souhail Karam

JEDDAH (Reuters) - Economic growth has stalled and recovery may take longer than usual, former Federal Reserve chairman Alan Greenspan said on Monday.

“As of right now, U.S. economic growth is at zero,” Greenspan said at an investment conference in Jeddah, Saudi Arabia’s second-largest city. “We are at stall speed.”

“Recovery might take longer to emerge than it usually does,” he added.

The longer growth stays at zero, the more likely the world’s largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.

“Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.,” he said.

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

The Federal Reserve said at the time it was worried the economy could face further setbacks, even after a series of interest rate cuts.

Greenspan also said a boom in oil prices, which hit a record of $101.32 on Wednesday, will “go on forever”.

Soaring crude prices have kept U.S. inflation high, even as growth slows.

 

© Reuters 2008 All rights reserved

Doom and Gloom: Recession likely in 2008

Recession in U.S. More Likely in 2008, Survey Finds (Update1)
By Steve Matthews

 

 

Feb. 25 (Bloomberg) — The proportion of economists who forecast a U.S. recession this year more than doubled in three months, to 45 percent, according to a survey by the National Association for Business Economics.

Of those, a majority expect the downturn to be “relatively muted,” according to the poll of 49 professional forecasters taken Jan. 25 to Feb. 13. Less than 20 percent predicted a downturn in the previous poll completed Nov. 6.

The spillover from the biggest housing slump in a quarter century, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 0.4 percent this quarter and 1 percent in the second quarter, the survey found.

“U.S. economic growth is expected to slow to a crawl in the first half,” Ellen Hughes-Cromwick, the group’s president and chief economist at Ford Motor Co., said in a statement.

The economy will expand 1.8 percent in the year ending in 2008’s fourth quarter, according to the survey. That compares with predictions of 2.6 percent in November.

The survey’s median forecast for fourth-quarter growth compares with 2008 forecasts of 1.7 percent in a Bloomberg News survey taken this month.

“Rising concerns around credit-market turmoil and the pain associated with that turmoil is what marked down the forecasts,” said Hughes-Cromwick in an interview with Bloomberg Radio.

Lower Rates

The Fed will lower its benchmark overnight lending rate between banks to 2.5 percent through the end of the year, from the current 3 percent, according to the NABE survey median.

Futures markets show traders expect a half-point reduction, to 2.5 percent, by the end of the next meeting on March 18.

Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last week. Policy makers have cut the benchmark interest rate by 2.25 percentage points since September.

Fed Chairman Ben S. Bernanke, appearing before the Senate Banking Committee Feb. 14, indicated that policy makers are prepared to lower interest rates further to revive the economy as banks make it tougher to borrow.

The economists polled by NABE projected growth “accelerating in the second half in response to fiscal and monetary stimulus,” Hughes-Cromwick said.

Congress has approved a $168 billion fiscal package to lift growth.

Effect of Stimulus

About 40 percent of the economists in the survey viewed the package as helpful in preventing a recession and an additional 30 percent said it would keep any recession short and mild.

“A lot of economists do think the fundamentals for the economy will serve us well and we’ll get through this weakness,” said Hughes-Cromwick in the interview.

The slowing growth this year isn’t expected to reduce inflation. The panel raised its forecast for price gains. The Consumer Price Index will rise 2.5 percent from the fourth quarter of 2007 to the same quarter in 2008, compared with 2.3 percent predicted in November.

The housing slump and credit availability were cited by forecasters as hurting growth this year. More than 60 percent of the economists said the housing recession will have a major negative effect on consumer spending.

To contact the report on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

Last Updated: February 25, 2008 11:53 EST

FT: Stem the foreclosures

 

America needs a way to stem foreclosures

By Lawrence Summers

Published: February 24 2008 19:16 | Last updated: February 24 2008 19:16

The American economic outlook remains highly uncertain. But macro­economic policy is now properly aligned, as the economy will benefit over the next several quarters from fiscal and monetary stimulus. To the extent conditions warrant and inflation risks permit, monetary and fiscal policy are appropriately poised to provide further stimulus.

Policy towards America’s failing housing sector is in a far less satisfactory state. All honest analysts accept that policies adopted so far, such as the “teaser freezer” limits on resetting mortgage interest rates and increased federal support for mortgage lending, have had only a marginal impact on what may be the most serious crisis in housing finance since the Depression.

It appears house prices are down by 5-10 per cent from their peak, with derivatives markets predicting further declines of about 20 per cent. Price falls of this magnitude are likely to mean more than 10m would have negative equity in their homes and more than 2m foreclosures would take place over the next two years.

Foreclosures are extremely costly. Between transaction costs that typically run at one-third or more of a home’s value and the adverse impact on neighbouring properties, foreclosures can easily dissipate more than the total value of the home being repossessed. They also inflict collateral economic damage, as reduced wealth and diminished borrowing capacity in homes reduces consumer spending, increases credit market fragility and depresses local tax bases.

What can public policy do? It cannot and should not try to fix the fact that at current prices the supply of homes significantly exceeds demand or the reality that many own homes, often for speculation, that are no longer viable and should be back on the market.

But it can and should address a crucial issue: when the current owner is able and willing to pay more than the lender can get by foreclosing on a house, it makes no sense to go through with a foreclosure. Yet because of conflicts among lenders, legal uncertainties and concerns about encouraging defaults, there are grounds for fearing that wasteful and unnecessary foreclosures will take place on a large scale, hurting families, communities, the economy and the financial system.

How can this problem be addressed? The string has pretty much been played out on hortatory policy, to limited effect. Without finding ways of writing down mortgage liabilities, new finance will do nothing for the problem group that has negative equity. Direct government intervention in mortgage markets risks creating delays, burdening taxpayers and inhibiting necessary adjustments in house prices.

The right focus is on measures that will prevent unnecessary foreclosures by facilitating more efficient settlements between homeowners and their creditors. Legal changes currently being debated, to bring practice with respect to family homes into conformity with general bankruptcy practice in two areas, could make an important contribution.

First, remarkably, bankruptcy laws currently provide that almost every form of property (including business property, vacation homes and those owned for rental) except an individual’s principal residence cannot be repossessed if an individual has a suitable court-approved bankruptcy plan. The rationale is the prevention of costly and inefficient liquidations. It is hard to see why similar protections should not be prudently extended to family homes.

Critics worry that such measures will dry up the supply of mortgage credit. This is a legitimate concern and the reason why legislation should be carefully and narrowly drafted, to be applicable only to past mortgages where there has been no fraud and where foreclosure is otherwise imminent. But it is worth noting that: some inhibition on lending to those who seem likely to go bankrupt might be a good thing; also, there has been an adequate supply of capital and ability to securitise in the market for vacation and rental housing, where debtors are protected; and moreover, chapter 12 of the bankruptcy code enacted in the mid-1980s, which applied these principles to family farms, helped to resolve great financial distress without long-term costs in terms of reduced farm lending – despite protestations much like those that are heard today.

Second, methods need to be found to enable creditors who accept a writedown in the value of their claims to retain an interest in the future appreciation of the homes on which they have mortgages. This is standard practice in situations of corporate distress, where debt claims are partially replaced by equity claims.

Obstacles to such mortgages include uncertainties about tax and accounting rules. But at a time when there are great advantages to inducing lenders to let families to remain in their homes – and when families facing foreclosure are prepared to do things they might not do in ordinary times – it would be desirable to pursue suggestions by the Office of Thrift Supervision for so-called negative equity certificates to support shared appreciation work-outs.

Bankruptcy reform alone could, on some estimates, avert 500,000 foreclosures and, by establishing templates for renegotiation, aid a wider restructuring of mortgage debts. Proper support for voluntary restructurings involving interests in future appreciation should realise still greater benefits. As with fiscal stimulus, rapid bipartisan co-operation between Congress and the administration would benefit the financial system, the real economy and millions of Americans.

The writer is Charles W. Eliot university professor at Harvard

Top economists debate Martin Wolf’s and Lawrence Summers’ columns in the FT’s Economists’ Forum

Copyright The Financial Times Limited 2008

Farrakhan’s award from Obama’s Church

Sen. Barack Obama belongs to the Trinity United Church of Christ in Chicago. Trinity United Church is “Unashamedly Black and Unapologetically Christian.” You can read more about it here, but keep in mind this doesn’t make Obama’s Church racist.

Obama was asked about his Church early on in this Presidential race. He said this:

“Commitment to God, black community, commitment to the black family, the black work ethic, self-discipline and self-respect,” he said. “Those are values that the conservative movement in particular has suggested are necessary for black advancement. So I would be puzzled that they would object or quibble with the bulk of a document that basically espouses profoundly conservative values of self-reliance and self-help.”

However, The Trinty United Church of Christ awarded Louis Farrakhan an award through their Trumpet Magazine. Not only an award, but the Rev. Jeremiah A. Wright Jr. award to Farrakhan because he “”truly epitomized greatness.” The same man who said whites are the devil and Jews are the real anti-Semites epitomizes greatness.

Nonetheless, Obama distanced himself from Trumpet Magazine, his Church and Louis Farrakhan. He said, “”I decry racism and anti-Semitism in every form and strongly condemn the anti-Semitic statements made by Minister Farrakhan, I assume that Trumpet Magazine made its own decision to honor Farrakhan based on his efforts to rehabilitate ex-offenders, but it is not a decision with which I agree.”

So, in all honesty, does an endorsement from Louis Farrakhan really matter?

Farrakhan loves Obama

Louis Farrakhan spoke highly of Sen. Barack Obama in his first address since battling cancer. Could this be a problem for Obama?

Farrakhan is the same man who said:

“These false Jews promote the filth of Hollywood that is seeding the American people and the people of the world and bringing you down in moral strength…It’s the wicked Jews the false Jews that are promoting Lesbianism, homosexuality. It’s wicked Jews, false Jews that make it a crime for you to preach the word of God, then they call you homophobic!” Feb. 26, 2006

“I’m not an anti-Semite, I never have been one. I do not hate the Jewish people; put that down! What I hate is the degree of control that they exercise over Black intellectual, cultural expression. I do not think that no human being should determine how high we can go, that can only be determined by God and by us; not by no white man, no black man, no human being [crowd cheers].” Aug. 31, 2005

Oh, there is more about the Jews too.

He also said this too:

Hillary Mocks Obama. Ouch.