Local Economist Takes Congress To Task Over Debt Crisis

There may be a mixed blessing amid all the squabbling in Congress.

As Tuesday's deadline looms and a possible deal to raise the debt ceiling still remains tentative, the stock market has been taking a beating.

Yet despite the markets' bruises and scrapes last week, a local economist predicts a temporary solution followed by a healing rally.

One major one-two punch was the Commerce Department's announcement Friday that the economy was even worse than it forecasted. Revised numbers showed the second quarter GDP growth was only 1.3 percent against a 1.9 earlier reporting.

The knockout, however, was that first quarter was revised to a sharp decline of only 0.4 percent gain, when 1.9 percent was previously reported. 

Wall Street's response closed Friday ending their worst week in a year.

In general, corporate stocks have taken a real hit, according to agriculture economist Bill Johnson, a professor at Joliet Junior College. Indecision has been the real culprit, more than anything else. Whether the U.S. goes into default is territory we have not been in before, he said.

"I think it is fairly likely that they will pass something [Sunday] or early Monday," Johnson said in an interview Saturday. "The Senate is probably going to come up with some type of solution that enough of them can vote for. Then we will find out if some of the children will become adults."

President Barack Obama announced Sunday at tentative deal has been reached.

Johnson, who has taught economics in the agriculture department at JJC since 1968, says the balanced budget amendment is a red herring, allowing some politicians a stage for their grandstanding.

"They forgot that they were elected to do what's best for the country, not their own narrow-minded opinion," he said.

Johnson painted a bleak picture of our economy, citing bearish stock performance, a declining dollar, record high gold, and Friday's revised growth rates.

"This crap that [politicians] are messing with now is the last thing we need to get things on the right track," he said.

Agriculture commodities positive

"As far as ag commodities, actually in a sick sort of way, this is bullish for the simple reason that the declining value of the dollar makes our ag products cheaper for other countries to buy," he said.

For example, in a weak economy, the demand for meat typically decreases. However, the U.S. has an all-time record high in hog prices right now. This is largely due to the Chinese need for pork in order to keep their consumers happy, Johnson said.

What is happening in Washington is having a negative effect on oil prices, primarily because a weak economy means weak demand for energy, which drove the price of oil down somewhat.

However, the weak dollar drives oil up. These two events are working against each other, which stimulates the demand for agriculture exports, Johnson said.

This is a mixed blessing, if you can call it a blessing.

"I think what will really happen this coming week is that they will somewhat come up with a relatively short-term debt solution, at least until the presidential election," he predicted.

This will be followed by a brief rally in the stock market later this week. The rally will be tempered by poor economic growth numbers, so it will not be an explosion, he said.