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Fed Officials: Recovery Could Take Six Years

By Dan Weil and Gene Koprowski   |   Wednesday, 25 Nov 2009 05:17 PM

The Federal Reserve says it could be five to six years before we return to normal growth.

That’s according to Fed officials in the central bank’s latest economic forecast.

They expect unemployment, now 10.2 percent, to remain in a range of 6.8 to 7.5 percent through 2012.

"Business contacts reported that they would be cautious in their hiring and would continue to aggressively seek cost savings," Fed officials said in minutes from their most recent policy meeting.

“Businesses would be able to meet any increases in demand in the near term by raising their employees' hours and boosting productivity, thus delaying the need to add to their payrolls," the officials said.

"It is a slow-motion recovery," Stuart Hoffman, chief economist at PNC Financial Services Group, told The Washington Post.

"It sure doesn't look like the beginning of a normal, rapid recovery."

Economist David Rosenberg is even more pessimistic.

“We’re in a form of depression," Rosenberg, chief economist and strategist at Gluskin Sheff Associates, Inc., a Toronto wealth management firm, told CNBC.

"Depressions . . . typically happen after a prolonged period of credit excess morphs into a collapse, and you get asset deflation. We had asset deflation, and we had a contraction in private-sector credit."

Billionaire George Soros believes a “bloodletting” may be in the offing for leveraged buyout firms (LBOs) and commercial real estate investors amid the worst economy in seven decades.

“In commercial real estate and leveraged buyouts, the bloodletting is yet to come,” Soros said in a speech in Europe, reported by Bloomberg News.

“These factors will continue to weigh on the American economy, and the American consumer will no longer be able to serve as the motor for the world economy.”

Bankers across the globe have accounted for $1.66 trillion of write downs and write-offs on bad loans since the start of the credit crisis in 2007.

Moody’s Investors Service reports that the global speculative default rate will peak at 12.5 percent this quarter as the U.S. and European economies struggle. The rate rose to 12 percent in the third quarter, up from 2.8 percent a year earlier, Moody’s reports.

That’s nearly 10 percent in just 12 months.

Soros reckons that, given these facts, the global economic recovery is “liable to run out of steam” and that a “double-dip” recession may emerge in 2011.

Others agree that a double-dip recession may hit soon, but for other reasons.

New York Times columnist Paul Krugman, a Nobel Prize winner, says that the double-digit unemployment rate is undermining confidence, and not just in the financial industry.

With more suffering likely, the poor economic leadership of the world’s largest countries may cause a collapse of confidence among ordinary workers and businesses worldwide.

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The Federal Reserve says it could be five to six years before we return to normal growth. That’s according to Fed officials in the central bank’s latest economic forecast.They expect unemployment, now 10.2 percent, to remain in a range of 6.8 to 7.5 percent through 2012....
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2009-17-25
 

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