The Pessimist Scenario assumes:
- No change in the Big Banks First policy regarding the financial sector.
- The commodities bubble now underway is not met at the pass by government countermeasures.
- Health care reform is passed, but without the public option.
- No new or significant fiscal stimulus.
The Baseline Scenario assumptions we've already gone over:
- New significant stimulus, including help to states and localities
- A viable public option in the health care reform package
- Oil prices moderate, and the commodities bubble is short-lived
The Optimistic Scenario:
- A full public option included in health care
- Commodities bubble is short-lived
- Full reform of the banking sector, including structuring markets to exclude government guarantees of derivatives and breaking up the big banks
- Fiscal stimulus is paired with climate change alarm
- Revenue is enhanced with carbon taxes and higher rates on the wealthy
- The consumer economy is buried under the rubble of the crash of the financial markets.
- An end to the Great Recession has to come on the back of public goods
- Strength or weakness in financial markets. Lower stocks will lower effective borrowing rates. Strength in stocks will gin up confidence.
- Dollar weakness or strength. Dollar weakness mirrors strength in the price of commodities, particularly oil. Although we have argued for a decade that the trade imbalance eventually means a weaker dollar, that is not so true in the short term in an economic crisis.
- Budget deficit. The larger the deficit the more fiscal stimulus is likely to have been administered, but also the more pressure builds to raise interest rates and resist needed reforms.