As a Management major and in search of a finance internship, I have recently been doing my best to keep up with the markets, world news, the economy (or lack there of), etc… It seems that ever other headline I read in the Wall Street Journal contains more doubts about where our economy is headed and furthermore where the European Union is headed; specifically Greece and Portugal. However, Dean Baker, normally a pessimistic economist can see the light at the end of the tunnel.
Dean Baker guest blogged on the financial blog, Planet Money. Interestingly, Baker was one of the few that predicted the housing bubble burst we have been discussing. Moreover, Baker is taking a different route than most others who also predicted the burst; he believes our economy is not as bad off as the WSJ and others make it seem. In his blog he torts that the whole EU crisis is simply to attract attention and that if there was a serious risk of default that actions would have been taken long ago.
I’m not entirely sure that I agree with Baker but it certainly opened my eyes to what really could be going on despite what we read and watch in the media. If it were the case that the EU is just dragging this whole process out, they better cut to the chase. The average investor is terrified of making a risky investment so instead they stick to assets that carry less risk such as fixed income assets. But wait, Fed Chairman Bernanke just announced that interest rates will stay low until at least 2014. Therefore, in order for investors to at least preserve their capital, they are having to invest in riskier assets such as equities; thereby exposing themselves to a higher chance of losing money. Now I am only in the beginning stages of building my financial background, but from the information that’s available I am not nearly as optimistic as Mr. Baker.
I think this can also be tied into the short-termism that we discussed in class. I believe some of the suggestions laid out in this proposal (if you will) were extremely viable solutions and were not thought up by your average Joe. Overall, the government needs to play a bigger role in the current economic crisis. To relate back to Mr. Baker’s main point, we need to create economic growth. 2.8% is decent for the final quarter of 2011, but nowhere near what it needs to be to pull us out of this recession.