Doom you say?

There are some people who predict bad things all the time. Now they may firmly believe the predictions they make but generally, what they predict does not come true. Of course the same thing can be said about those who constantly predict only good things. Now, we are all aware of the old saw about whether a glass is half empty or half full. Now, looking at that isolated event it is impossible to know if it is in the process of being filled or being emptied. However much of the forecasting that goes on is based on isolated bits of information.

For example, because of the recent crisis, the Government has provided stimulus to the economy. If you only look at that fact, you may easily predict inflation because of the additional money and debt and higher taxes. Now, those things are possible but there are many other scenarios that shouldn't be ignored. The basic concept of capitalism is that you need to invest in order to reap ultimate benefits. If the Government stimulus jump starts the economy and ends up causing 10 times as much economic activity as the amount spent, the taxes collected from that increase will more than pay for the stimulus without increasing tax rates. Now, that may be an overly optimistic view, but clearly, the result falls somewhere between no additional revenues being collected and some multiple many times the amount spent.

The ultimate result depends on how well it was crafted. Now, once again there are those convinced that everything the Government touches is doomed so they see no positive result.

It should be noted that doomsayers in general are sometimes right. With the recent economic problems they have gained a level of prestige that rewards the fact that their general pessimistic outlook finally seemed to prevail. However, much like any soothsayer, it would really require a full analysis of their record over time to determine their credibility.

The current arguments that the current rally is a bear market rally and that we are destined to have a double dip and retest the March lows are predictions being made by some of these doomsayers. Now, you can look at upcoming foreclosures and problems in commercial real estate and assuming that nothing is going to be done come to terrible conclusions. However, it should be pointed out that had the Government not decided to crucify Lehman last year, we may easily have had a very different recession over the last 12 months. Many of the doomsayers were only proven right because the Government officials having espoused free market malarkey decided that they could let a major financial institution collapse and almost destroy the financial markets. It is unlikely that any Government officials will be quite so cavalier for a long, long time.

Now, we may have a correction and we may have a dip in the recovery. However, it is much more likely that the improvements we are seeing will start to grow and ignite the economy into fairly robust growth. It always looks bad near the bottom and in a few year I expect to hear analysts discussing what was the basis for the economic growth and how so many missed the signs.

Of course our doomsayers will toil on, but by then will once again be largely ignored.