Recovery remains tenuous, inflation looms in next several years, Wells Fargo economist says
Although the U.S. economy posted growth for the third quarter of 2009 and is likely to show growth for the fourth quarter, the country’s economy is currently on “assisted living” because of the large amounts of cash the Federal Reserve Bank and U.S. Treasury are pumping into it, according to Eugenio Aleman, vice president and senior economist with Wells Fargo Economics.
Aleman was the keynote at a recent meeting of the Milwaukee chapter of the Association for Corporate Growth (ACG).
“The U.S. economy is the most efficient economy in the world and we are still the best economy in the world,” he said. “If we cannot recover, no one else can recover. We are going to recover.”
However, the current economic recovery appears tenuous to Aleman, making him wonder how long it will last.
“My biggest concern is growth sustainability,” Aleman said. “The government has stepped in and it has helped the economy, but what happens when the government pulls back? We had the same thing with the three tax breaks we got during the Bush administration – we got three tax breaks in order to help the economy, and the economy was helped for one or two quarters and then we fell back.”
Like a patient in an assisted living facility, the U.S. economy currently is not capable of producing growth on its own, Aleman said. And like most patients in such facilities, the U.S. economy cannot live under assisted living forever.
“Hopefully, the Federal Reserve and Treasury will give plenty of time to allow the things that were wrong in the economy to get fixed and work through the problems and then grow again,” he said. “2010 will be better than 2009 or 2008 because there is a lot of money coming from the federal expenditure package. And there are going to be more attempts from the administration to put out more (financial assistance) to different sectors of the economy.”
However, the large amounts of money being pumped into the economy is likely to cause inflation, which could manifest itself as early as 2011, Aleman said. In fact, the only reason that inflation has not yet appeared is because banks are not lending large amounts of money.
“At some point, the banks are going to start lending again, (and) unemployment will start going down,” he said. “If the U.S. economy starts to grow, we are going to use more gasoline, more oil, more good, more electricity and more everything. When everybody’s buying, prices go up. And if you have an environment that is prone to have a lot of money going around, then inflation is probably a certainty.”