Monday, December 22, 2008

5 Reasons Why the Economy Might Recover Faster Than You Think in 2009

Here's a little Christmas cheer...hoping this will happen!

5 Reasons Why the Economy Might Recover Faster Than You Think in 2009 - Capital Commerce (
Let's all hope Barack Obama is wrong when he says that getting the U.S. economy straightened out "will take longer than any of us would like — years, not months. It will get worse before it gets better." And let's pray that Joe Biden is way off when he says the economy is in danger of "absolutely tanking." But, to be honest, far more economists would pretty much agree with those pessimistic statements than the number that wouldn't. (Though that is a good contrarian sign.) Most regular Americans, too. Still, there are a numbers of reasons to think that the economy might, just might, shift back into gear faster than most of us think or hope:

1) Plunging oil prices. It was only five months ago that oil prices hit a record high of $147 a barrel. Now they're below $40 thanks to slowing global demand. At the same time, gas prices have plunged from over $4 a gallon to around $1.67 nationally. (And some analysts think they're heading to a buck a gallon.) And just as high energy prices were a drag on the economy last summer, they're giving it a boost heading into 2009. JP Morgan Chase economist James Glassman estimates that the drop in oil prices represents "a boost equivalent to a $350 billion stimulus." To bring that down to the average consumer, Glassman explains, think of it this way: The typical household drives 15,000 miles annually. So a drop in gas prices to, say, $1.50 a gallon would represent a savings in their annual gas bill of $2,500 from when gas was at $4. This could boost GDP growth by as much as two percentage points.

2) Falling mortgage rates. If there's anything falling as fast as energy prices it's mortgage rates. Rates for a 30-year, fixed-rate mortgage fell to a low, low 5.19 percent last week thanks to the Federal Reserve's pledged efforts to purchase mortgage securities. That should help housing affordability and the ability of current homeowners to refinance their mortgages. And even more good news could be on the way if you don't mind Uncle Sam borrowing billions more for yet another bailout: The Treasury Department is reportedly considering a plan to push mortgage rates to as low as 4.5 percent for new homebuyers and, perhaps, even for current homeowners who want to refinance. Investment strategist Edward Yardeni thinks if rates could get pushed down to 4 percent, either via the Fed or Treasury's efforts, the economic impact would be amazing. He figures that the average rate on the $10 trillion in outstanding mortgages is about 6 percent. A two-percentage-point drop would amount to a $200 billion annual tax cut for the 45 million American households with mortgages.

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