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Money Expert: We'll Be in Recession By End of Year

Friday, 15 Apr 2011 06:03 PM

By Forrest Jones

A respected economic expert is warning that a recession is definite by
December and that U.S. stock prices are going to plunge, thanks to
Federal Reserve strategies and the soaring price of crude.

John Taylor, founder of the FX Concepts hedge fund and former vice
president at Citibank, says the U.S. economic recovery has taken place
thanks in large part to the Federal Reserve's money printing Recession,
Economy, Stock Prices, John Taylor, Martin Feldsteincampaign, known as
quantitative easing, which ends in June.

"Recovery has never really gotten off the ground. It's all government
stimulated," Taylor tells CNBC. "We'll be in a recession by the end of
the year."

Oil prices continue to rise, thanks in part to a cheap dollar, which
will further hamper economic recovery, Taylor said.

Meanwhile, the cost of living in the U.S. rose in March for a ninth
consecutive month, led by increases in food and fuel costs that have yet
to filter down to other goods and services.

Further oil price hikes could do serious damage to the U.S. economy, Oil
Price Information Service chief oil analyst Tom Kloza recently told The
Associated Press.

For consumers, "gas prices have more relevance on an emotional level
than a lot of other things that they pay for," Kloza said. "People pay
more attention to gasoline than phone service, cable TV or other
services."

Kloza said it may not be long before the national average tests the
all-time record of $4.11 per gallon set in July 2008.

Those warnings are being echoed by Mark Zandi, chief economist at
Moody's Analytics.

"The surge in oil prices since the end of last year is already doing
significant damage to the economy," Zandi told the AP.

Another economic expert isn't as adamant in insisting that a new
recession is guaranteed, but he says the specter is very real. And even
if high oil prices don't trigger another recession, they'll dampen
economic growth, says Martin Feldstein, former chairman of the Council
of Economic Advisors.

"It certainly could happen," Feldstein tells CNBC when asked if a
recession were possible. "It is certainly not the most likely outcome,
but I think continued low growth held down by things like the high level
of energy prices could give us a number much closer 2 percent (GDP) than
the kind of 4 percent number that's being forecast - and it could be
south of 2 percent."

But while oil prices are a problem for consumers in the United States
and abroad, the Federal Reserve isn't to blame, Feldstein says.

Monetary authorities have kept interest rates low and are printing money
in order to spur more robust economic activity, which weakens the dollar
and sends investors racing to oil as a hedge.

Yet basic supply and demand is the culprit, Feldstein says.

"I think the strong demand in some places for oil like China and then
all of the problems in the Middle East raise great uncertainties about
what our oil supply is going to be worldwide," Feldstein says.

Nevertheless, soaring oil prices are acting like a tax on consumers
here.

"The U.S. imports 4 billion barrels of oil a year, so a $40 increase in
the price of oil, which is what we've seen since last year, that's $160
billion that American consumers are turning over to oil producers
outside this country," Feldstein says.

"That's 1 percent of GDP, so it makes the fiscal discussion about $38
billion or $60 billion or $20 billion - those are small numbers in
comparison to the $160 billion tax that the oil producers have put on
us."

Meanwhile, the Consumer Price Index rose 0.5 percent in March, the Labor
Department said Friday. That matched February's increase, the largest
since the recession ended in June 2009. In the past 12 months, the index
has increased 2.7 percent, the biggest rise since December 2009.

Excluding the volatile food and gas categories, the so-called core index
rose 0.1 percent and it is up only 1.2 percent in the past year.

Consumers are spending more, but the steep rise in food and gas prices
could limit their ability to purchase discretionary goods and services.
Consumer spending makes up 70 percent of economic activity.

Rising inflation has caused many analysts to reduce their estimates for
economic growth in the January-March quarter from roughly 3 percent or
higher to as low as 1.5 percent.

Gasoline jumped 5.6 percent last month and has risen nearly 28 percent
in the past year. Consumers paid an average price of $3.81 a gallon
nationwide on Friday according to the travel group AAA.

Manufacturers, food processors and other producers are facing higher
costs for oil, grains and other commodities. But only some of those
increases are reaching the consumer. Many retailers are reluctant to
pass on the higher prices for fear of losing price-conscious customers.
Consumers have seen wages and salaries stagnate in the past year,
limiting their ability to pay more for many goods. According to a
separate government report Friday, average hourly earnings for all
employees, adjusted for inflation, dropped 1 percent in the past 12
months.

Stagnant wages are a big reason that most Federal Reserve policymakers
say the spike in gas and food will have only a modest and temporary
impact on inflation.

But a top Federal Reserve official said he expected commodity prices to
stabilize and have a minimal effect on underlying U.S. inflation trends,
even if costly fuel did put a dent on household budgets, Reuters
reported.

Dennis Lockhart, president of the Atlanta Federal Reserve Bank, said
historically, prices for industrial commodities "have tended to exert a
relatively small effect on most consumer prices."

"This is not to say there will be no pass-through effect on inflation.
The point is the effect is likely to be muted."

© Newsmax. All rights reserved.



I thought we were already IN a recession??

Gunner

You're kidding, right? What with all the jobs that the government has
created and saved and all those new "green" jobs that "folks" have been
getting, how could such a thing be?

Just ignore the panhandlers. Even if you recognize them from the office, or
they are friends/relatives/in-laws. Tell them to GO GET A JOB, just like
everyone else, dammit.

Recession?

Pshaw!

As an aside, we are having a record year on our vacation rentals, I guess
people wanting to save money and rent a house while in Vegas instead of
paying for those bedbug infested drunks in the hall at 3 AM hotels.

You ought to know by now you can't believe everything you see or read. And
none of what you hear........................

HTH

Steve

Heart surgery pending?
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