A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Sunday, June 21, 2009

Forecast charts and assumptions

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

All assume
  • 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

Of no concern to us is:
  • 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.

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