U.S. UPTICK DOESN'T MEAN CRISIS IS OVER: TOP U.S. ECONOMIST
May 16, 2009
FLORIANOPOLIS, Brazil -- A few recent glimmers of economic hope emerging in the United States do not mean the global crisis is over, a top economist who advises U.S. President Barack Obama said Saturday.
The crisis "is certainly the worst that I have seen in my career," Martin Feldstein, a 69-year-old Harvard economist and member of Obama's Economic Recovery Advisory Board told a world tourism conference in Brazil.
"The evidence simply doesn't support" the conclusion that the United States is on its way to a sustained recovery, said the academic, who also served as an advisor under former presidents Ronald Reagan and George W. Bush.
He added that Europe's economy is "equally bad if not worse than in the U.S.," and "Japan has been hit even harder."
While some U.S. observers and media in recent weeks have struck an optimistic tone on the back of a rebound in the stock market and positive results from big U.S. banks, Feldstein said that was "temporary" because the bad news far outweighed the good.
He stressed that a "one-time rise in GDP due to the stimulus package" implemented by Obama's administration was being extrapolated across the rest of the year.
But he said that stimulus package, headlined as an 800-billion-dollar initiative spread over two or more years, in fact equated to just 300 billion dollars for this year.
That, Feldstein said, was less than half the 750 billion he estimated had been sliced out of the U.S. economy by dramatic stock market losses, home price declines, and a drop in residential construction caused by the crisis.
The package "is not strong enough, not targeted enough, to deal with these problems," he stated.
Feldstein noted that one-third of all mortgaged U.S. homes were now worth less than the value of their loans, suggesting more owners would simply walk away and the rate of foreclosures would rise, further depressing house prices and causing a spiral.
"It is a very dangerous situation," Feldstein said.
A recovery was possible in 2010, the professor advanced, but added: "Frankly, that is just a hope."
He also warned of an impending slide in the value of the U.S. dollar after the crisis because of the massive U.S. trade deficit, a scenario that would drive up the trade-weighted value of the euro, making European exports more expensive.
In the past three weeks, the bad news has piled up in the United States.
Official data showed the economy shrank 6.1 percent in the first quarter of 2009, with unemployment climbing towards what analysts predicted would be nearly 10 percent by year's end.
Auto giants General Motors and Chrysler are in distress, and U.S. airlines have reported a seven-percent drop in travel for the summer vacation period.
U.S. industrial production continued to fall in April, by 0.5 percent, after a 1.7 percent decline in March. U.S. consumer prices dipped on an annual basis at the steepest pace in nearly 54 years.