Paul Kasriel: 2011 Economic Outlook – Credit given Where Credit is Due

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Paul Kasriel, Chief Economist of Northern Trust, has just produced his annual economic forecast. Here are some of the key takeaways:

  • The pace of economic activity is expected to accelerate in 2011 on a Q4/Q4 basis largely because of increased growth in credit created by monetary financial institutions.
  • Housing and state/local governments are sectors that will remain a drag on economic growth.
  • Exports are and likely will remain a star performer of the U.S. economy.
  • Inflation, while remaining low in absolute terms, is expected to increase modestly.
  • Money market interest rates are anticipated to remain near current levels because the Fed is not expected to raise its policy interest rates in 2011.
  • Bond yields are expected to drift higher as real bond interest rates continue to “normalize”.
  • The principal upside risk to economic growth and interest rates is that private monetary financial institutions sharply increase their credit creation.
  • The principal downside risk to economic growth and interest rates is that Chinese economic growth decelerates sharply.
  • Federal budgetary issues are not a near-term threat to economic growth, but are a long-term threat.

Click here for the full PowerPoint presentation.

Source: Paul Kasriel, Northern Trust, January 2011.

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1 comment to Paul Kasriel: 2011 Economic Outlook – Credit given Where Credit is Due

  • Ian Nunn

    We have been hearing a mainstream whine for 3 years now, that banks are not lending – creating credit. More recently, a few have pointed out that the DEMAND for credit by CREDIT-WORTHY customers is low. A few have also suggested that many banks’ balance sheets are so impaired, their real capital base precludes them from lending more. And who would know when the government and the Fed have sought to keep the whole operation as opaque as possible.

    There are two idiocies operational in the mainstream economic pablum that officials put out. The first is that the government can create jobs. To be fair, the government can – by hiring new government workers, an exercise that is demonstrably counterproductive. The second is that if banks lend more the economy will recover. To be fair in this case, by re-implementing the strategies beginning with Greeenspan and the economic genetic engineering of the Shadow Banking System, and by continuing to dismantle good regulatory oversight, we can replicate the economic growth that blew up in 2007. But do we want to do that route again so soon?

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