NEW YORK - It's all too clear that the economy is in a rough patch. The dollar's weak, energy and food costs are high, the stock market is down, oil is at record levels and housing values have lost years of gains. What's next?
Marshall Loeb, MarketWatch senior columnist, recently interviewed Irwin Kellner, chief economist for MarketWatch and distinguished scholar of economics at Dowling College in Oakdale, N.Y.
In a few words, Irwin, please describe our current economy. For example, a few years ago, when everything was going well, experts dubbed it the "Goldilocks Economy" - not too hot, not too cold, but just right.
Well, you can call it the "Murphy's Law Economy" - if anything can go wrong, it will.
Are we near a bottom?
We are bumping along a bottom. But it is really amazing that bumping along a bottom is all that's happened, given the one-two punch that was doled out to us. I am talking, of course, about the bursting of the housing bubble, and the resulting credit crisis from the securitization of the housing market - packaging mortgages so they could be resold to investors.
But I don't think the housing market has bottomed. Housing prices have farther to fall. For example, South Florida can go down another 10 percent to 15 percent, as can Las Vegas, Arizona and the whole state of California.
What other consequences will the continuing housing decline have on the broader economy?
All this is affecting the consumer. Falling housing prices dissuade builders from building, and they affect individual perceptions. People are feeling less rich than before because their homes are worth less.
This will take another one year or more to unwind.
Meanwhile, what other forces may give some strength to the economy?
What is offsetting the housing slump is spending by business on technology to make its operations more efficient and lower costs. But the resiliency of the U.S. economy in the face of the housing bubble is amazing. It is a testament to the Federal Reserve for doing such a good job at dealing with a difficult situation.
But for every action, there is a reaction. The Fed has flooded the economy with money, and this has depressed the value of the U.S. dollar. This boosts inflation.
