Results of my 2009 first half economic predictions
Written by Michael Vass
Back in 2008 I made a couple of predictions about how the economy would fare through the 2nd quarter of 2009. That was over a year ago, before the election, before the mortgage crisis really took hold, and before all the bailouts and stimulus packages we now have. How good was I?
The post was Predicting the U.S. economy for 2nd half 2008 and 2009. In that post I stated
“The Fed has been providing banks extra money to ensure their solvency, but not requiring that loan reserves be increased. It’s kind of like stopping a leak in your tub by adding more water. The problem is not getting fixed and may get far worse. And all the panic about the mortgage industry seems to have done nothing but whip up polispeak from political candidates and political parties, each looking to sway voters…
I expect that in total some 7% of homes are in danger of foreclosure this year…
Of course what is likely to happen is that Congress (with it’s 9% approval rating - sure to go lower) will take taxpayer money and bailout homeowners and financial institutions alike. Thus more water will fill the leaky tub. Undoubtedly the current Administration will be blamed (even more than they should) and the war in Iraq (and possibly Afghanistan) will be identified as the cause of all these ills. Which is false…
The outcome will probably be a surge for Senator Obama, who prefers a bailout. This may lead to him being elected and higher taxes to pay for that bailout. And if anyone thinks a bailout of this size will be limited to just the top 1% of the nation they are insane…
1. Confidence in all financial will go lower forcing the need for more liquidity
2. Several institutions will fail - focused mostly on those dealing with housing markets first
6. Home foreclosure will hit 5.5%
7. Bankruptcies will increase by 3%
9. A Democratic Congress will be re-elected
10. Senator Obama will likely be elected
11. Republicans will be blamed
12. Taxes will be increased for all incomes by 3% by 2009
13. Corporate taxes will be increased by 10% early in 2009
14. Inflation will soar unchecked by 3 - 5%
15. Unemployment will grow to 8.5% by December 2008There may be other sources of opportunity but they will be guided by factors including but not limited to:
Iran
Iraq and Afghanistan wars
Inflation
Unemployment
Manufacturing and Industrial layoffs
Retiree growth rates
Healthcare costs
International political stability”
Other than the increases in inflation, corporate and individual tax rates, (which I still expect) and the timeframe of the events everything mentioned above happened roughly as I expected they would. The net result I expected
“As money tightens, gold will be a hedge and prices for all precious metals will soar again. Credit will get severely crunched, and credit card rates will fly. The debt load on the average American will increase from the current $6,000 to $8,500. Most of this increased debt will be from higher energy costs. Thousands of small businesses will shutdown.
As a result of all these things I expect that the Dow Jones will drop to 10,200 by December. If I am correct about Congress and Senator Obama - for the reasons stated - then I further expect a drop to 9,300 during 2009. A significant bear market indeed.”
As of today, the net debt of every American citizen is in excess of $10,000 (just from the $3.5 trillion budget). Gold prices are up. Credit is still crunched. Energy costs are rising, and Cap & Trade will drive it substantially higher. At least thousands of small businesses have folded already, with more expected to go under as the year continues. The Dow Jones Index blew past 9,300 on its way to 6,440 at the bottom.
Overall, looking at everything I expected to happen and the things that have not, plus the parts I got partially right I was roughly 62.5% correct. [30 dead on, 14 dead wrong, and 4 partially correct]
I wish that this was something I could cheer about. My predictions were gloomy and filled with trouble. It was an outlook that continued forward for potentially several years. It predicted that millions would be placed into a position of financial instability and workplace insecurity. I truly would have like to be massively wrong.
But for those that heeded my comments a year ago, some solace was gained. And that at least is a positive. Going forward I will soon be making my predictions for the second half of 2009 and the first 2 quarters of 2010. I cannot promise that all my outlook will be positive – if any of it. But if I remain as consistent as I have for every year I have made a prediction (so far I have never been lower than 62%) at least my readers will be prepared.
