Economist gives review, forecast of recession
Too many homes sold through deals that buyers could not refuse.
That’s the scenario that led to a big part of America’s current economic woes.
So says Dr. Gene Stanaland, known the “Will Rogers of Economics.”
The noted lecturer and former head of the economics department at Auburn University shared his views on how the U.S. economy got in its current state, and what the economic future holds, with members of the Greenville Rotary Club Thursday.
“If you look at the numbers, you see new construction steadily rose from 2003 through 2006, before it began a steady decline. So there was a surplus of houses out there. How do you get rid of them? Offer great deals, low interest rates, no money down,” Stanaland said. “Pretty much everybody got into the home mortgage business. By 2004, 67 percent of households in the U.S. owned their own homes.
“By 2006, however, principal payments were coming due and people started defaulting. Nobody would buy the mortgages and no one was selling them.”
With the housing market in the hole, Stanaland said, finances also dried up for student loans, credit cards and car loans, threatening day-to-day operations.
“The financial system was truly in jeopardy of a meltdown in this country . . . that is why the Federal Reserve System started pouring money into the system,” Stanaland said.
“The media painted this as a bailout for the rich bankers, but the truth is many ordinary folks would have been affected if steps had not been taken.”
The economist said only 10 percent of the federal stimulus monies had been spent so far, and there was no reason for a second stimulus “until this one goes through first.”
He noted much of those monies were specified for infrastructure such as roads and bridges.
Stanaland’s forecast for the recession is a continued contraction through the second quarter of the year, with improvement beginning in the third quarter of 2009.
The recent emergence of GM and Chrysler from bankruptcy should help the flagging U.S. auto market putting a number of auto workers back on the job, he said.
Recovery for the housing market may take another two years or more, according to Stanaland.
“The banking system really won’t return to normal until someone puts a price on those subprime mortgages out there,” he said.
While the overall economy should continue to improve into 2010, Stanaland said unemployment will not peak until the middle of next year.
“Even as things improve, cautious employers are going to hesitate to hire back full-time people if they are unsure the recession hasn’t bottomed out yet – that’s why you will continue to see those higher unemployment numbers,” he said.