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Seven Steps To a Better Economy

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What must happen to turn US around.

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It seemed like every well-known prognosticator in the financial world was at it yesterday. To a man and woman, the underlying theme seemed to be things could get a lot worse before they get any better.

Federal Reserve Bank of San Francisco President Janet Yellen said there are "substantial" risks the US economy will slow, but also pointed out inflation should slow, too. Her observation that the current rate "does not imply a highly accommodative policy stance" could mean there is another sea change brewing at the Fed. Of course, it's the hawks that have the momentum, but with other central banks around the world cutting rates, the Federal Reserve may want to revert to the strategy it's most comfortable with.

There is no doubt the market is sending out an S.O.S. to anyone in Washington that will listen. Here's where we are right now: Gutting it out just seems out of the question.

Instead, the new conventional wisdom is intervention is not only coming but obligated to do so. Hey, so be it. Of course this throws Nietzsche's theory out the window, because while we may not get killed it's unlikely we will get stronger.


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Therein lies a serious problem but one that will not rear its head until after the dust has settled. (I'm talking about lessons not learned and thereby repeated later.)

We have put ourselves in a position from Wall Street to Main Street, where it seems bailouts aren't only needed but the prerequisite to turning around our fate. That said, something has to happen soon with Fannie Mae (FNM) and Freddie Mac (FRE) and if some entity out there wants to buy Lehman Brothers (LEH), management should drop the coy act and take the offer. (Memo to Dick Fuld and Co: Check out the closing print for Yahoo (YHOO) share price yesterday. If there is money being dangled in front of you, take it.)

Of course, in my opinion, there has to be a series of things that fall into play, including:

  • Banks have to begin to lend.
  • Housing prices have to stop going lower.
  • Housing inventory has to be absorbed.
  • Employment must improve.
  • Taxes must remain low.
  • Business taxes must get lower.
  • The aura of the nation must improve.

What hasn't worked, despite assumptions that it would, is a stronger dollar and weaker crude oil prices. Sure, there is point where the dollar is too low, but I'm not sure how strong we want it to be.

Then there's crude, which has come down too fast, casting a pall over the entire economy: The headwind now looks more like headache. If crude is a harbinger for things to come, it could spell a serious meltdown in the global economy, but I don't think that's the case.

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No positions in stocks mentioned.
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