By Michael R. Crittenden and John Cranford, CQ
Staff
The U.S. economy is a miraculously resilient engine. Over the past
quarter-century, it has weathered the biggest stock market crash in
history, the savings and loan debacle, the bursting dot-com bubble,
several global financial crises that wrecked other economies and the Sept.
11 attacks. It has succumbed only twice to recessions, each of which was
shallow and each of which persisted for just eight months.
Even broad-based and sturdy economies occasionally surrender to the
business cycle, however. And it was aggressive interest rate cuts by the
Federal Reserve and the fortuitous timing of a Republican-engineered tax
cut in early 2001 that combined to shore up consumer spending and keep the
relatively mild contraction that year from being worse.
But the clouds are gathering again.
The warning signs of a recession — defined in the United States as a
broad-based decline in economic activity — are appearing just over the
horizon. Economists of all political and ideological stripes say the U.S.
economy has been on an unsustainable path, for any number of reasons. The
debate among them is not whether the rain will come but how hard it will
fall.
And on this they mostly agree: There is very little the government —
Congress, the White House or the Federal Reserve, the watchdogs of U.S.
economic well-being — can do to ward it off or maybe even mitigate its impact
.
Housing is the bellwether so far. After providing a multi-faceted boost
to economic growth since the late 1990s — creating jobs, stimulating
appliance and furniture sales, and putting a little extra in American
pocketbooks from home sale and mortgage refinancing proceeds — the market
for new and existing home sales has gone beyond merely cooling off.
Housing now threatens to drop off a cliff and take with it consumer
spending, which accounts for more than two-thirds of what the United
States produces.
Forecasters who say the economy will weather the housing storm are
banking on rising business investment, fueled by strong profit growth. But
corporate executives are clearly worried, and that raises the stakes that
companies will rein in the construction of new buildings, the startup of
new projects and the hiring of new employees. If that should happen, it
would weaken investment, the second sturdiest leg of the economy’s stool,
not strengthen it.
There’s no counting on exports, of course: The U.S. balance of payments
was $800 billion on the negative side of the ledger over the past year,
and it’s deepening by the month. And government spending — never a huge
contributor to growth but important nonetheless — is being pinched both by
higher interest rates and still-high energy costs.
All of which leads a few economists to fear the worst.
“As I read the flow of macro-economic indicators that have come out in
recent weeks, it is even clearer to me that, instead of the consensus view
of a ‘soft landing,’ we will have an ugly ‘hard landing’ of the U.S.
economy in the next few quarters,” said Nouriel Roubini, an economist who
teaches at New York University and has written extensively on causes of
the economy’s ups and downs.
If those apprehensions turn to reality, it’s a sure bet the public will
clamor for help from official Washington, which could, at its discretion
and with the right political impetus, deliver more tax cuts, approve new
spending initiatives and push down interest rates.
But after spending much of their ammunition fighting the last
recession, the White House, Congress and even the Fed are all in a box:
The most significant actions they would be predisposed to take are
unlikely to work, and in some cases might do more harm than good.
Nevertheless, lawmakers of both parties will want to act, even if the best
course might be for them to sit on their hands.
If Congress tries to boost spending to keep ordinary Americans
employed, for instance, the money will probably arrive too late to be
effective. And although it’s certainly possible to cut taxes further to
hand a bit more cash to consumers and businesses, the negative
repercussions of such a step are far more consequential — and likely —
than ever before.
Meanwhile, few lawmakers want the Chinese to buy even more Treasury
bonds to finance a once-again-growing budget deficit. And even if they
did, foreign investors may balk at increasing their holdings if U.S.
government economic policy begins to look reckless.
The principal charge of the Fed is, of course, protecting the economy.
But the central bank is also in a bind, caught between worries that growth
is slowing and fears that inflation remains a dangerous risk. Starting in
the middle of 2004, the Fed steadily raised its benchmark interest rates
17 times, stopping only in June at the current level of 5.25 percent. But
inflation has only barely been kept in check. That poses a trade-off that
Fed Chairman Ben S. Bernanke probably doesn’t want to make.
The worst outcome, from his point of view, would be a contracting
economy combined with runaway inflation. And history shows that even
aggressive rate-cutting in 1990 and 2001 failed to prevent those
inevitable recessions.
Which adds to this: If a recession really is around the corner, the
government may have few options. The fiscal and monetary policy measures
usually available aren’t in easy reach.
Jeffrey Frankel, a professor at Harvard University’s Kennedy School of
Government, offers this gloomy assessment: “This next recession, whenever
it may be, will be worse than the last one because we no longer have the
freedom to use monetary and fiscal policy to respond in an aggressive way
as was done in 2001.”
Economic Indicators
There is no shortage of economists and Wall Street fund managers who
say the United States faces the risk of recession by the middle of next
year, though very few are predicting it outright. It’s the threat that is
on everyone’s mind, particularly after the most recent statistics showed
housing and manufacturing to be much weaker than thought.
Home sales have fallen for four of the past five months, and fewer
existing houses and condominiums were sold in August than at any time
since January 2004. The bigger news, though, is that the rise in home
equity, which has been a huge contributor to consumer spending, has ended.
House prices, which increased about 50 percent over the past five
years, have not only significantly slowed their appreciation nationwide,
but are now declining, according to both the National Association of
Realtors, which tracks existing home sales, and the Commerce Department,
which follows new construction. After peaking in April, the median price
of new homes has moved lower fitfully. The shocker came when August
figures showed the first year-over-year drop in the median price of
existing houses in 11 years.
Even more stunning was a closely watched survey of area manufacturers
by the Federal Reserve Bank of Philadelphia that, in September, showed
that the economy may be on the verge of contracting. For the first time
since 2001, a larger number of surveyed factory operators said their
business was worsening than said it was improving.
These economic indicators amount to flashing yellow lights that signal
trouble ahead, but they don’t yet amount to evidence of a turning point,
most economists say. That may be why no one in a position of authority in
Washington has so far raised a serious alarm.
President Bush and administration officials continue to pronounce
everything fine. “This economy of ours is strong,” Bush declared during a
tour of a tool factory in Cincinnati on Sept. 25.
And during an online chat from the White House two weeks earlier,
Edward Lazear, chairman of the president’s Council of Economic Advisers,
put a positive spin on the housing slowdown for a student from Indiana.
“A couple of factors that have received significant media attention are
housing and energy prices. But there is good news on these fronts,” Lazear
wrote. “Gasoline prices have declined the past few weeks, and moderation
in housing construction has been offset by non-residential and business
investment.”
Administration officials also regularly point to the relatively low
unemployment rate — which has averaged 4.7 percent this year, the lowest
sustained level since Bush took office — as a sign that the economy is
resilient.
But in fact, monthly job growth has been less this year than in either
2004 or 2005, and is barely half the average number of new hires in the
late 1990s. And while the administration maintains that the number is
sufficient to keep the economy humming, job growth continues to fall below
White House projections. In February, the Council of Economic Advisers
estimated that the economy would generate 176,000 jobs a month in 2006,
but the monthly figure has averaged just 141,000.
The Fed, populated by economists who take a more refined view of the
situation, acknowledges that the economy is cooling. But in the latest
comments from central bank officials, it’s impossible to find evidence of
concern that recession might be in the wind.
“The moderation in economic growth appears to be continuing, partly
reflecting a cooling of the housing market,” the Fed said Sept. 20 in a
statement explaining that it had decided to hold its benchmark interest
rate steady and watch for signs of both accelerating inflation and
excessive weakness before deciding what step to take next.
In his twice-yearly assessment to Congress, Bernanke said in July that
“the slowing of the housing market appears to be more broad-based than can
be explained” by favorable weather earlier in the year that might have
accelerated some sales. Still, he said there were no signs of the
nationwide decline in home prices, which has since become evident. And he
seemed to cheer the slowdown as a brake on overheated growth that would
help keep inflation in check.
That sanguine official view stands in contrast to the picture painted
by corporate chieftains and Wall Street economists who make a living
trying to stay ahead of the curve.
A quarterly survey of chief executive officers from more than 100 of
America’s largest corporations revealed that they have become increasingly
pessimistic over the past year, and are even less hopeful than they were
immediately after 
Hurricane Katrina devastated the Gulf
Coast and kicked off a surge in energy cost increases.
This survey, released last month by the Washington-based Business
Roundtable, showed that fewer CEOs than earlier this year expect to
increase investment and hiring over the next six months. Many more plan to
cut back spending and to pare payrolls. The Roundtable’s overall outlook
index fell in the third quarter to its lowest point in three years.
A survey of chief financial officers released last week by the
accounting firm Grant Thornton showed that the people who manage American
corporate books are likewise becoming more apprehensive.
And the Philadelphia Fed’s quarterly survey of forecasters released in
August, before the latest bad news, showed economists becoming anxious
about the economy’s prospects for the middle of next year. The average of
their predictions was a 20 percent probability that the economy would
contract by the second or third quarter of 2007. Looking that far ahead,
it was the most pessimistic reading for the oft-mentioned survey since
early 1999.
Tax Cuts Prompt Spending
If the possibility of recession does become clearer, it’s all but
certain that lawmakers and the White House will start talking about
reducing taxes.
Almost no one disputes that the pain of the 2001 recession was softened
by a $1.35 trillion, 10-year tax cut enacted in June of that year, which
included a $300 per taxpayer advance refund to be paid in cash during the
fall. Those government checks were landing in mailboxes right about the
time of the terrorist attacks on New York and Washington, and the fact
that most people spent them gave the shrinking economy a $38 billion lift
at just the right time.
That recession was notable because consumer spending didn’t decline for
even a single quarter, and the economy’s contraction was driven almost
entirely by a pullback in business investment that persisted for more than
two years. It’s not hard to imagine that if consumers hadn’t kept
spending, the economy’s collapse would have been much worse.
Cutting taxes has long been seen by Congress as a quick and easy way to
stimulate a sluggish economy, and the experience of 2001 simply reinforced
that belief. Moreover, the president has showed he is a ready advocate of
reducing taxes to provide economic incentives.
“If the American people would take a step back and realize how
effective our policies have been, given the circumstances, they will
continue to embrace our philosophy of government,” Bush said in a Sept. 15
news conference. The economy has grown since the 2001 recession “because
we cut taxes,” he said.
So, it stands to reason that if the economy does appear headed for a
crash, one sure palliative that might be prescribed by Republicans, and
maybe some Democrats, is a short-term tax cut like the advance refund of
2001.
Some conservative analysts see other opportunities for a more targeted
approach to changes in the tax code that they say would be broadly
beneficial to the economy. “The code itself is so screwed up that there
are lots of things that one could do to help,” said Kevin Hassett,
director of economic policy studies at the American Enterprise Institute.
In particular, Hassett favors reducing business taxes to counter
perceived imbalances between the U.S. tax burden and that faced by
companies operating overseas. “If we lowered the corporate tax rate, we
bring a bunch of corporate activity home and help the economy” by
promoting job and income growth, he said.
Still, any tax cut effort will run up against arguments that it will
simply add to the federal budget deficit, and even Hassett is reluctant to
recommend recession-specific approaches to reducing taxes. “Generally,
it’s not a good idea to do anything during a recession,” he said.
Part of the problem is a general misunderstanding among lawmakers and
other non-economists of just how tax cuts affect the overall economy. Tax
cuts such as the one in 2001 succeed in tempering an economic contraction
not because they put money in hands of consumers — who occasionally save
it or use it to pay off debts — but rather because the government has to
borrow more to sustain its own level of spending.
Most economists say it’s the deficit spending, not who makes the
purchasing decisions, that supplies the bang behind the buck. And
ultimately that’s why the experience the last time may not tell much about
what will happen the next time the economy falters.
Harvard’s Frankel and others note that the 10-year economic expansion
of the 1990s — the longest in U.S. history — was also the first in memory
driven neither by huge budget deficits or artificially low interest rates.
Instead, it was built on a foundation of private economic activity, and
that made it easier for Washington to act when it had to.
But the economy’s most recent growth was abetted by tax cuts and
historically low interest rates that escalated the housing boom.
“We’ve already cut the daylights out of the tax base,” said Lyle
Gramley, a senior adviser at the Stanford Washington Research Group and
former Fed governor. “We’ve shot that arrow in our quiver, and we don’t
have one left.”
There is another difference this time around: the condition of the
federal budget. In early 2001, analysts of every stripe were forecasting a
continuation of the unprecedented surpluses that had accumulated the three
previous years and grew as large as $236 billion in fiscal 2000.
“When the economy did go into recession, there was the option of
cutting interest rates very sharply in 2001 because they didn’t have to
worry about inflation, and cutting taxes very sharply because they didn’t
have to worry about the budget deficit,” Frankel said.
But the surpluses evaporated — stripped away by the tax cuts and the
recession — and the deficit has since ballooned. Though lower today than
in recent years, the annual deficit remains close to $300 billion and is
projected to creep higher in 2007.
“Tax options have been the preferred means of manipulating the budget
in a counter-cyclical direction, but we’ve got such big deficits now and
looming in the future that I can’t imagine anybody would want to cut
taxes,” said Alice Rivlin, a senior fellow at the Brookings Institution
and a former Fed governor.
Eugene Steuerle, a senior fellow at the Urban Institute, a
nonpartisanWashington think tank, takes a longer view. Noting that
President John F. Kennedy won tax cuts in 1961 to give the economy a boost
as Americans struggled then to climb out of a recession, Steuerle said the
long-term fiscal consequences were negligible compared with today.
“Formerly, you didn’t have a long-term budget problem, and even a
significant tax cut meant that instead of getting to a surplus in three
years, it might be four,” said Steuerle, who was deputy assistant Treasury
secretary for tax analysis in the late 1980s. Now that’s not the case, he
said, because of built-in tax breaks and spending programs — especially
for Social Security and Medicare — whose costs are
growing faster than the economy can, even in good times.
“If the long run is really out of balance, then the financial markets
are also more threatened by the short-run stimulus because you’ve run up
this additional debt, but it’s much less obvious how it’s going to be
covered,” Steuerle said.
In addition, the Fed is put in the awkward position of trying to react
both to the added economic stimulus and to market expectations that
government debt will grow exponentially, with the higher interest rates
that implies.
Democrats’ Plans
Concern about long-term fiscal problems probably leaves Democrats in a
jam as well, should they win control of either chamber of Congress and be
in a position next year to lead the charge in the event of economic
trouble.
California’s Nancy Pelosi, who
would become Speaker in a Democratic House, unveiled a series of proposals
that her party would pursue if they gained power, and many of them involve
spending money — on college costs, health care and alternative fuels.
Notably absent, though, is any sort of classic economic stimulus
proposal that relies on increased spending. And if the party’s response to
the 2001 recession is a guide, any proposed increase in spending during a
recession would be targeted at helping individuals who lose their jobs,
not broadly boosting the economy.
In fact, most Democratic suggestions at that time were focused on
extending unemployment benefits, broadening welfare payments and providing
health care to those who lost employer-paid coverage.
“Back in the olden times, we used to talk about public works and public
employment as responses to the recession, but I think almost everybody has
agreed that’s not very useful as a recession response,” said Rivlin. “It
just takes too long to get the money out.”
Moreover, the Democrats say they intend to renew their efforts to
curtail the federal deficit. That means they would have to endorse tax
increases or alternative budget cuts to finance increased spending. And
neither increasing taxes nor offsetting spending cuts is a useful tool to
pull the economy out of a recession.
“Congress is in a spot, and they put themselves in it,” said Rivlin,
who in the 1970s served as director of the Congressional Budget Office. “I
would say there’s very little they can do with fiscal policy.”
Only if a recession turned out to be much deeper and more persistent
than those of the recent past might there be a clamor for additional
deficit spending, some experts said. That could happen if the economy
contracts next year and the problem stretches into 2008, said Barry
Ritholtz, a Wall Street analyst and hedge fund manager. “People are going
to start to get a little bit nervous, and that’s how you get set up for
some big public works infrastructure program,” he said. “That’s the only
way I think people will have the political will to do it.”
Interest
Rate Increases
If neither tax cuts nor new spending is a viable remedy, that leaves
the job of recession-fighter to the Fed. But the central bank — always on
the front lines of this battle — is also in a tight spot.
Internally, the six members of the Fed’s Board of Governors (a seventh
seat is currently vacant) and the presidents of the 12 regional Fed banks
appear conflicted. Together, they set interest rate policy for the
country, and at each of their past two meetings, on Aug. 8 and Sept. 20,
central bank policy makers voted not to change their benchmark interest
rate.
Both times, Fed officials indicated in a brief public statement that
they believed the economy was cooling. But at the same time, they said
they were concerned the slowdown might not eliminate the inflation threat
and that rates might have to rise higher as a consequence. (And at both
meetings, Jeffrey M. Lacker, president of the Fed Bank of Richmond,
dissented from the Bernanke-led majority in favor of an immediate rate
increase.)
“Right now, they appear to be on hold, thinking we don’t know exactly
how this is going to turn out,” said Rivlin. “The economy is certainly
slowing, but it’s not clearly going into recession. If they thought it
were, they’d move down.”
Rivlin is far from alone in thinking the Fed could and would act to
lower interest rates at the first hint of a recession. Gramley, her fellow
former Fed governor, said there’s little doubt that “a significant
recession would pull inflation down in a big hurry.”
And because short-term interest rates have risen, “the Fed would have
ample room for stimulative monetary policy,” said AEI’s Hassett.
But not everyone agrees. Because an interest rate cut amounts to easing
back on the inflation brake, some economists say such a move could raise
doubts in financial markets as to Bernanke’s credibility and his
willingness to contain accelerating prices.
Second, the evidence may not be clear-cut right away. “If the economy
went into recession and there was no sign of an immediate effect on
inflation, which is probably the case because these things take time, then
they would feel caught in the middle, and they may not think they could
ease monetary policy aggressively,” said Harvard’s Frankel.
Under Alan Greenspan, the Fed proved it can be nimble in altering
course. No one saw the last recession until it was well under way. In
December 2000, for example, the 52 forecasters who participated in the
monthly Blue Chip Economic Indicators survey collectively expected the
economy to grow by 3.1 percent the following year. In fact, the economy
did expand, but just barely: by 0.8 percent.
Only one analyst group in the Blue Chip survey, the Anderson
Forecasting Center at UCLA, came close with its prediction of 1.1 percent
growth for the year.
But confronted with signs that the economy was slowing precipitously,
central bankers that same December suddenly shifted gears and dropped
their repeated warning to the markets that they were still on an inflation
alert.
Then, on Jan. 3, the Fed began a series of 11 rate cuts that during
2001 alone lowered borrowing costs by 4.75 percentage points. The central
bank’s benchmark rate dropped by the end of the year to what was then a
40-year low of less than 2 percent. Still, that wasn’t enough to forestall
the recession, which began in March and was over by November. (It’s worth
recalling, though, that Greenspan & Co. also couldn’t have stopped the
Sept. 11 attacks, which plainly exacerbated the economy’s collapse.)
Beyond being unable to prevent a contraction, some observers say, the
Fed’s actions since 2001 have made it less likely that the central bank
will be able to muster its typical response to combat another recession
any time soon.
NYU economist Roubini, for one, said he expects that economic
statistics will persuade central bankers to embark on a series of
2001-style rate cuts by this winter. “But my theory is that this cutting
rates is not going to rescue the economy,” Roubini said. “I think the Fed
is running out of bubbles to create. They created the bubble in the tech
stocks that burst, and they slashed rates for far too long, and created
the housing bubble that’s now bursting.”
This skepticism owes some of its foundation to research done by
Greenspan himself and published by the Fed last September, a few months
before his chairmanship ended. Greenspan’s study suggests that American
homeowners took as much as $1.7 trillion in equity out of their houses
from 2001 to 2004, an amount equal to 80 percent of the increase in
mortgage debt over that period.
As much as half of that money went straight into consumer purchases,
helping to sustain the recovery from the 2001 recession, Greenspan
estimated.
Economists now concerned about the Fed’s ability to induce consumers to
spend by lowering interest rates also point to the rising level of
individual indebtedness. Household mortgage debt almost doubled between
2000 and the second quarter of 2006, Federal Reserve statistics show, and
now exceeds $9.3 trillion. Total household indebtedness now equals almost
19 percent of U.S. taxable income, an all-time high, according to the
Fed.
With consumers already borrowed to the hilt, it’s not at all clear that
lower interest rates would stimulate another round of household borrowing
to underpin a rise in spending. Even Gramley is concerned that rate cuts
might temporarily help shore up the declining housing market, but only by
delaying further the day of reckoning.
“You wouldn’t want to give the rest of the world the impression you are
throwing caution to the wind,” Gramley said.
Edward Leamer, the director of UCLA’s Anderson Forecasting Center — the
group that all but called the 2001 recession — shares Roubini’s skepticism
about how much ammunition the Fed might have. He argues that by holding
interest rates at historic lows until only recently, the central bank
essentially robbed the future economy of home sales, car sales and other
purchases.
“The answer is that they are stealing sales from the future,” said
Leamer. “Now having stolen them, they can’t steal anymore because there
are only so many cars you can fit in your garage, and they’re already in
there. And that’s true of homes, too.”
That’s ultimately going to be a problem for Bernanke, Leamer said.
“He’s left with a very difficult task, which is to make the economy grow,
when it doesn’t have any natural source of growth.”
Predicting the
Economy
For lawmakers and central bank officials, it’s time now to watch — and
maybe cross their fingers. Most economists, including those on Capitol
Hill, in the White House and at the Fed, contend that U.S. economic growth
will merely slow for a few quarters. Many are predicting that by this time
next year, the economy may be accelerating again.
David Lereah, chief economist of the National Association of Realtors,
says the fact that home prices are now falling probably signals an end to
the hemorrhage in sales. Because sellers are beginning to see the reality
that prices had risen far too high, they may be able once again to find
buyers just by asking for less money, he said.
The National Association of Home Builders, though, is worried that the
market for new construction won’t hit bottom until the middle of next
year. “We’re now in the midst of an inevitable and necessary downward
adjustment,” said David Seiders, chief economist for the builders’
organization, last week.
The speed with which the housing market has slumped has left many
economists puzzled, however, and some are now predicting an even more
prolonged decline.
Other evidence suggests that the economy isn’t doing as well at present
as once believed. The Commerce Department last week revised its estimate
of economic growth for the second quarter to a 2.6 percent annual rate,
less than half the pace reported for the first three months of the year.
One reason is that the falloff in residential construction subtracted more
from economic growth in the second quarter than at any time in 15
years.
And more important for those who are counting on continued increases in
business spending, the Commerce report also showed that after-tax
corporate profits in the second quarter were flat compared with the first
three months of the year, limiting the money that companies might have for
such investment. In recent weeks, more companies have been issuing profit
warnings on Wall Street.
Economists are beginning to factor the housing collapse more acutely
into their projections. The September Blue Chip indicators survey showed a
consensus forecast of 3.5 percent growth for all of this year and 2.7
percent for next year. But those figures will be different when the next
consensus is released in early October, said Randell Moore, editor of the
Blue Chip survey.
Growth in the final six months of this year “will likely be weaker than
previously thought because of troubles in the housing and auto sectors,”
he said. But because energy prices are falling and because of an
expectation “that most of the profound weakness in residential investment
will end up occurring in 2006 rather than in 2007,” analysts also may
expect growth in 2007 to improve, he said.
The frequently pessimistic UCLA Anderson forecast sees trouble ahead,
with a “sustained period” of slow growth, continued hints of inflation and
a small rise in the jobless rate.
“To be sure, we are not forecasting a recession, but the glide path of
the economy is about to get bumpy as the housing market continues to
deteriorate,” said the center’s latest outlook report, released last week.
“The combination of sluggish growth and rising prices will have the look
and feel of a low-level stagflation. . . . Policy makers will have a great
deal of trouble grappling with it.”
After housing, inflation is the other wild card. Declines in gasoline
and natural gas prices have gotten the headlines, but energy costs as
measured by the consumer price index were still 15 percent higher in
August than a year ago and 38 percent higher than in August 2004. The
so-called core CPI, which excludes food and energy costs and is supposed
to better reflect the underlying path of inflation, was 2.8 percent higher
in August than a year ago, the biggest increase in five years.
The rise in energy costs even pushed Starbucks Corp. to raise prices
for its coffee drinks nationwide for the first time in two years, a
bellwether that consumers are likely to notice.
The Fed and others expect slower economic growth to take the edge off
inflation, but former Fed Chairman Paul A. Volcker said last week at a
forum in New York that he’s not so sure.
“It is kind of creeping up, and I am impressed by the degree of
pressure, if that is the right word — psychological pressure, political
pressure — there is not to do anything about it,” said the 79-year-old
Volcker, the man who ran the Fed in the early 1980s and pushed interest
rates toward 20 percent to wring persistent inflation out of the economy,
precipitating a deep recession in the process.
That raises the question of whether a recession would actually be a bad
thing for the economy as a whole — even if it would be terrible for the
people who lost jobs and income.
Recessions are essentially nature’s way of ridding an economy of its
imbalances, and many economists see a raft of those at present.
“I think this time around you just have to let the recession occur and
live with it,” said NYU’s Roubini. “Last time we bought the best recovery
money could buy, but at a very high price. At this point, I think the
country needs to adjust and start spending within its means.”
Consumers and politicians may not agree with that approach, even if
they have to live with it.
FOR FURTHER READING:
Federal budget’s day of reckoning, 2005 CQ Weekly, p. 2554;
2001 tax cuts, 2001 Almanac, p. 18-3; Philadelphia Federal Reserve
Bank Web site
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CQ Weekly September 29,
2006
© 2006 Congressional Quarterly Inc. All Rights Reserved.
