Smith Faculty Opinion Article
The 30 Seconds Outlook
February 15, 2011
“If you don’t know where you are going, any road will get you there.”
- Lewis Carroll, Alice’s Adventures in Wonderland, 1832-1898
Looking ahead there are indications of continuing improvements in the economy
(and also some not so good).
On the positive side, federal tax receipts are growing at double-digit rates.
Success in reducing government spending would reduce uncertainty about the
likelihood of future tax increases and spur hiring, investment and risk taking,
all of which enhance economic growth. As consumer confidence increases, the
demand for money for security will fall and M2 money velocity will increase,
thus providing a boost to economic growth. Low real interest rates and the steep
Treasury yield curve signal a continuing recovery consistent with history. Fear
of deflation has all but disappeared with inflation expectations in the
historical normal range. Mortgage interest rates are yet very low so increasing
Treasury yields at the current low levels pose no immediate threat. Treasury
yields signal low inflation expectations for the next several years. Equities
are currently underpriced if the problems we face prove to have positive
solutions.
John A. Haslem
