A recession? Nah says President Bush.
At least that’s what he told reporters yesterday at a White House news conference.
“I’m concerned about the economy,” he told them, “I don’t think we’re headed to recession. But no question, we’re in a slowdown.”
That, of course, put him at odds with the growing chorus of folks that claim that we are already in one. After all, according to recently released data the economy grew at a glacial pace last quarter. GDP clocked in at an annual growth rate of 0.6% in the most recent read.
And while that might not technically reach the recession point, it’s certainly too close for comfort.
So what was the reason behind all of that economic confidence emanating from the podium at the White House yesterday?
Well not surprisingly, it has something to do with the recently passed $168 billion stimulus plan that he and the Congress are bragging about lately.
“We acted robustly,” Bush said of the plan. “We’ll see the effects of this pro-growth package.” he continued.
But the funny thing about any “stimulus” package is this: It actually needs to be spent to before it stimulates anything.
And that’s one of the problems behind this monumental and shortsighted disaster. Consumers might actually decide not to blow it at Wal-Mart after all.
In fact, that’s exactly what some of them are telling pollsters these days.
Here’s the skinny.
From Bloomberg by Matthew Benjamin entitled: Americans Plan to Save, Not Spend, Tax-Rebate Checks, Poll Says
“The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.
Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they’ll pocket it.
“People in Washington assume that about 40 percent of the money will be spent,” said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. “Much less would be disappointing.”
Respondents are increasingly gloomy about the economy’s course. A majority said the U.S. is already in a recession and that President George W. Bush hasn’t done enough to tackle the home-mortgage crisis.
“It’s time to circle the wagons and pay down debt,” said Chris Danvers, 50, of Sacramento. He said he’s noticed that business is slowing in the upscale steak house where he works as a waiter, so he will pay off the debt he recently incurred buying a refrigerator and a couch.”
That sentiment, of course completely jives with recent poll by HSBC Bank USA revealing a dramatic change in consumer attitudes about spending and saving.
Nearly 2 out of 3 consumers, says HSBC, intend to reduce indulgent spending in 2008 according to their survey, while 4 out of 5 also want to increase the amount they save.
In fact, even famed trends guru, Faith Popcorn, has weighed in on this one.
She recently told USA Today that “This is a seminal moment. It’s not a fad that will die out when the economy picks up. It’s cooler not to spend.”
Hmmmmm. Now let me see if I have this straight.
Gas is headed to $4 a gallon and the Congress is fighting over a package that would invest $18 billion in alternative energy.
Meanwhile the government is more than willing to spend some $168 billion on stimulus checks that will likely come up short.
It’s madness I tell you. Absolute madness.
By the Way: According to a story in Bloomberg this morning, the fine folks over at UBS AG now say financial firms are likely to face at least $600 billion of losses as the crisis triggered by the collapse of subprime mortgages continues.
“We have to recognize the risk that the economy will suffer more damage than what consensus suggests,” Geraud Charpin, head of European credit strategy at UBS in London, wrote in a report today. “All the investment schemes that have been built on the basis of a strong and resilient economic backdrop have to be unwound/scaled down.” (Emphasis mine)
Unwound/scaled down is shorthand for sold by the way.
But the point to get your head around this morning is this, however, so far the banks have only written down of $160 billion so far. That’s means that if UBS AG is right, that the write-down game is only in the third inning and there are another $340 billion of write downs on the way.
Of course, UBS AG ought to know something about losing money these days. They had record setting losses related to subprime last quarter. They lost $11.28 billion in Q4.