“Economist Lacy Hunt takes a measured view of things. ... 'The yield curve is inverted,' Mr. Hunt said. Noting that short-term rates are higher than the yield on a 10-year Treasury, he points out that recessions nearly always follow. Add the decline in the leading economic indicators index, and that makes it virtually certain we'll have a slowdown next year. Maybe a recession.”
Lots of good stuff in this column.
First is the prediction of a recession. Note the date. November, 2006. Even though Democrats have yet to take official control of Congress, expect Republicans to blame the upcoming recession on the Democratic Congress.
But that's just politics. The second thing to note in this column is Mr Hunt's advice on how the Democratic Congress can influence how deep and how long that recession might last.
"If the new Congress raises the tax rates on investment income, it would put us in a bad position. We can't compete internationally on labor costs. So we've got to have strong capital investment. Raising the taxes on capital would take away our edge."Finally, Mr Hunt looks at the longer term. The outlook there is brighter.
"Mr. Hunt says we have entered a new period of global markets and productivity. Like the long period from 1871 to 1930 -- with major increases in agricultural, manufacturing and transportation productivity -- we may be in a long period of low to nonexistent inflation."The Democrats are the most likely party to interfere with global markets in favor of American protectionism, but don't count out the Republicans. President Bush and the free-trade Republicans are not so popular in their own party right now, either. Maybe, together, both parties might turn protectionist and drag down economic growth for America and world.
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