Its a time for concern now, but not for panic, economist says
Bill Conerly keeps busy during these uncertain economic times
As the nation's economy continues to roil, nationally recognized economists like Bill Conerly of Lake Oswego are busier than ever.
As of Wednesday, Congress was frantically trying to come up with an acceptable package after the stunning defeat of the first bailout plan on Monday.
To Conerly, that is not a bad thing, but he does expect a new package to be passed soon.
'I think the Federal Reserve could handle the problem without having a bailout,' Conerly said. 'But I guess they soon will have a bill.'
As for Wall Street plunging an incredible 777 points on Monday, Conerly noted, 'The stock market does not like uncertainty. I think things will calm down a bit in the days ahead as the situation becomes more stable.'
Meanwhile, all kinds of people are coming to Conerly for opinions and advice.
'A lot of it is the media,' he said. 'I also spend part of every day keeping up with developments so I'm ready when companies bring me in to meet with their management teams.
'A lot of it is casual. People ask me, 'Should I panic?' I'm happy to help them.'
Basically, Conerly's answer to this question is, 'No,' even though right now he has a stack of books on his desk about the history of past American financial debacles.
'There is reason for fear,' Conerly said. 'We're in a risky situation. But I'm at the optimistic end of economists. There have been harsh recessions and panics in this country's history, and there is the possibility this situation could get much worse.
'The worse case scenario is that this country goes into a sharp recession and unemployment goes up to 10 percent. But I think there's little potential for a Japanese-style recession of a 10-year downturn or another Great Depression. We know what it takes to prevent that.'
It has been 80 years since Wall Street came crashing down on Main Street, starting a decade of suffering that changed the American way of life, and the Great Depression still haunts this nation like a ghost. But Conerly does not look for a repeat.
'Looking at the Depression, a whole series of mistakes were made, and we're not making those now,' Conerly said. 'Ben Bernanke (chairman of the Federal Reserve) is an expert on the Great Depression.'
Of the current crisis, Conerly said he had predicted trouble because 'mortgages have been going south for awhile.' But he admitted, 'I'm surprised at the level of panic we've gotten into.'
That may be because the U.S. stock market has been in a state of relative tranquility for 25 years.
'The U.S. economy has a long history of crisis and panic,' Conerly said. 'But this has been relative since 1983 when we had 'The Great Moderation.' Maybe this is a dialing back. There will be pain for people who thought they had enough for a comfortable retirement. They'll say, 'Oops, I've got to get back to work.'
'But we have to remember we've had some major financial crisises in recent years (i.e., the savings and loan crisis of the 1980s and 90s) and we survived. Today, you almost have to be a financial historian to remember them.'
Now, new history is being made, and Conerly is wary of several political factors that could hinder an effective solution.
n Executive compensation -'This is about the politics of envy. It has nothing to do with the crisis. It's a chance to express envy of other people.'
n Lobbyists - 'Once we start talking about a bailout, every lobbyist out there starts figuring how to best help his client.'
n Community activists - 'They say, 'Let's have something for the people,' which is in conflict with the whole situation. This plan should be done in the broad national interest, not for a collection of special interests.'
As the nation stands of the verge of a bailout plan, Conerly says, 'I'm skeptical that it will be a good deal. But you can make the argument that you would rather be safe than sorry. I think we need well-intentioned lending to healthy businesses, not a bailout. Many folks disagree.'
Conerly, who runs Conerly Consulting in Lake Oswego, will be busy helping everyday people with their finances in the months ahead. His book Businessomics, published last year, is now selling briskly, and he has a new publication out called The ABCs of Your 401K, which is also available as a free online course at www.abcinvesting.com . Conerly is also working on 'a quick e-mail book' called The Small Business Financial Crisis.