It may not feel like it, but this is the year we're finally going to see some good come out of the economy, according to Marci Rossell
, former chief economist for CNBC
"We're going to look back at 2013 and say 2013 was the year when everything sort of changed," she said.
Rossell was a keynote speaker today at the ICI Tax & Accounting Conference
held at the JW Marriott San Antonio Hill Country Resort in San Antonio, Texas.
To illustrate her point, she compared the experiences, and government monetary policies, of the U.S. during the Great Recession with that of Japan, which has weathered through a stagnant economy for some twenty years.
Both countries suffered through economic downturns tied, at least in part, to real estate crises. Japan suffered through its crisis in the late 80s, a time period during which real estate was sold by the square inch.
When Japan's crisis hit, Rossell said that the Japanese Central Bank did three things that made it worse.
Firstly, the Japanese Central Bank was very slow to ease monetary policy, and quick to tighten whenever indicators showed a hint of inflation.
Secondly, Central Bank officials didn't do a good job communicating what they were doing and why.
Thirdly, the Central Bank was increasingly hamstrung by regulation.
In comparison, the U.S. Federal Reserve was quick to ease and resolute in that easing, despite continuous public outcry over the potential of inflation. The Fed also moved to an era of great transparency, especially in contras due to the opaque days of Allan Greenpsan
As a result, Rossell says that the U.S. economy is more or less making a comeback, even though it may not feel like such to many, given such lingering issues like high unemployment — which she described as a "structural" problem, and not one tied to monetary policy.
And inflation has more or less stayed within the 2 percent zone, although it did bump up to 3.5 percent in 2011, she said.
Real estate markets are bouncing back, Rossell noted, although some particular markets will never recoup due to overbuilding.
Many people are also feeling somewhat better about their situations, which is leading them to spend somewhat more, which in itself further helps the economy.
Mortgage lending activity is a little better, but Rossell argued that a tough mortgage process is a good thing. It should be hard to get a mortgage, she said. People should save a bit and have skin in the game when they buy a home, which should be treated as just that, a roof over their head, and not an ATM.
Rossell said she wasn't as worried about the Federal government's budgetary brinkmanship this time around because the last sequestration was more like a "fiscal bunny slope," than a crisis. She also expected that the choices would be hard no matter who was president or speaker of the House.
The U.S. economy, she argued, has evolved to the point of decisions over spreading the surplus, and that will always involve hard, unpopular decisions.
She also surprised audience members by admitting that there are still elements of the Great Recession and the current economy that baffle economists, such as the fact that inflation still remains so low despite quantitative easing.
On that point, Rossell said during the Q&A period that there are "problems with the monetary transmission system." To whit, increasing the money supply is not having the impact economists would expect, i.e. a rise in prices.
She expected that answering that particular question would win some young economist the Nobel Prize in the decades to come.
Rossell also stressed the importance of what she termed "financial intermediation" for the strength of the U.S. economy. In other words, the financial industry and system that takes liquid short-term funds from savers and channels them to productive long-term projects. She said this process is crucial for an economy to work.
"It is at the heart of everything we do in the financial industry," she said.
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