Economy Watch: Economy on a Slow Road to Recovery

"Very moderate, gradual, sluggish recovery" seems to be new conventional wisdom of economists.

September 14, 2010
Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user morrissey

“Very moderate, gradual, sluggish recovery” seems to be new conventional wisdom of economists. At least that’s the way Jan Hatzius, chief U.S. economist at Goldman Sachs put it on Monday when talking to CNBC. The optimism of the spring is gone, replaced by the very latest fashion this season, moderate pessimism.

Hatzius also had an opinion about the George W. Bush-era tax cuts (as do a lot of people): letting them all expire would shave “over a percentage point” off the U.S. economy at a time when it doesn’t have very many positive percentage points to spare. Not letting them expire would add a “couple tenths” to growth.

Should some tax cuts expire while others do not? Moody’s Analytics Inc. weighed in on that question on Monday as well, arguing that tax cuts for the wealthy (you know who you are) increase their rate of savings, not spending.

Moody’s crunched savings rate numbers by income bracket going back to 1989–an array of data from sources such as the Federal Reserve’s Flow of Funds reports and the Survey of Consumer Finances–to come to that conclusion. More important to the wealthy in terms of influencing spending habits seems to be movements in the stock market and other broad economic trends, Moody’s asserted.

Buffet Waxes Optimistic

Not everyone agrees with the latest conventional economic wisdom. The newly minted Octogenarian of Omaha, Warren Buffet, was considerably more optimistic than the run of U.S. economists on Monday. “We are not going to have a double-dip recession at all,” he said the Montana Economic Development Summit by video, as reported by the AP and Bloomberg. “I see our businesses coming back [almost] across the board” (though he was taking about Berkshire Hathaway in that last sentence).

Buffet is someone who can put his money–which is a whole lot of money–where his mouth is. Arguably he bet heavily on the future of the United States just this February when Berkshire Hathaway bought Burlington Northern Santa Fe Corp., the storied railroad, for about $27 billion.

Blockbuster: Another Step Toward Chapter 11?

Over the weekend, Dallas-based Blockbuster Inc. CFO Thomas Casey abandoned ship by announcing his resignation. He will be replaced by one Dennis McGill, formerly CFO of Safety-Kleen Systems Inc. and whose job description (to continue the metaphor) might be to guide the company into dry dock so it might be rebuilt in a more orderly way, rather than letting it be violently dashed on the rocks.

That is, the retailer is very likely facing Chapter 11 bankruptcy soon, the legacy of a business model wedded to the 1980s that the company hasn’t been able to update fast enough. Now Blockbuster is struggling under a large burden of debt.

Wall Street had another up day on Monday, with the Dow Jones Industrial Average gaining 81.36 points, or 0.78 percent. The S&P 500 rose 1.11 percent and the Nasdaq advanced 1.93 percent.