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.