Early in 2009, the banks start lending again
In January, the banks will realize that they cannot avoid lending forever. The Federal Reserve will financially punish any bank that refuses to lend by manipulating interest rates so that banks that hoard cash lose money. From the industry ashes a banking prophet will emerge who will preach the gospel of positive net interest spread through responsible lending.
The Obama Administration passes the largest fiscal stimulus program in the history of the United States
The fiscal stimulus plan will be bigger, better and more socially responsible than anything the Federal Government has ever done before. When the program starts to kick in James Carville will declare Obama has earned his place in history as “one of the greats” and will suggest he should be immediately added to Mt. Rushmore. Others will declare that the fiscal stimulus plan proves that Obama is a Marxist.
GDP falls in Q1, stabilizes in Q2, begins to rise in Q3 and is in full recovery by Q4.
Despite most economists predicting Depression 2.0 and the “end of the world as we know it”, the economy will begin to recover in 2009. However, the day after inauguration, right wing talk show hosts will declare the beginning of the “Obama Depression”. When the economy starts to do better, the same right wing talk show hosts will proclaim that Bush was right when he said the economy was “basically sound” and will give Paulson credit for engineering the recovery.
Deflation fears give way to inflation fears.
It turns out that the Federal Reserve wasn’t able to un-print money anymore than Eve could un-eat the apple. Economists will be relieved that they can predict Hyperinflation 1.0 and the “end of the world as we know it”.
Europe and Asia do worse than the U.S.
If you think it is bad here, just go over there. Jean-Claude Trichet will be exiled to the Island of Elba for starting his 2007 preemptive economic war on inflation. Trichet won the war but lost the economy. Liberal EU politicians will realize that exile is very “19th Century” and Elba is really kind of nice (good windsurfing, scuba and cute female Elbans). Trichet will escape but will be recaptured and made to work in the ECB audit department (after all regulatory audit work is worse than exile).
Hedge funds, funds of funds and other money management products are regulated and taxed.
Distraught former fund managers still won’t be able to accept that Madoff killed the golden goose. Soon, no one will be able to find an investor that actually admits to ever having put money in hedge funds; it will be as if the industry never existed. A rumor will spread that before the end of the Cold War hedge funds were invented by the Soviet Union to destroy America. Ann Coulter will say that Democrats invented the hedge fund industry to destroy the Bush legacy.
Obama makes enforcement of securities, banking and consumer protection laws a priority.
Wall Street bankers will burn Sarah Palin in effigy. After all, if she hadn’t blown the Katie Couric interview things could have been different. Aspiring white collar criminals will have to deal with prosecutors and regulators who actually try to do their job. 20 and 30 year old former investment bankers will be found in bars all around Tribeca trying to figure out what to do next. Graduate school will be out because they will all already have MBAs and their parents will refuse to pay for more school. Some will get “real jobs” and hate it.
Stocks go up then down then up then down then up then down. But major stock indexes end the year up.
Investors realize that market analysts don’t have a clue whether individual stocks will go up or down. But, liquidity created by the Federal Reserve, a slowly recovering economy and massive fiscal stimulus all conspire to push the Dow, S&P and NASDAQ up by year end.
Regional tensions rise and countries face internal strife because of the poor global economy. Most of the U.S. is an island of stability.
Sarah Palin does the ultimate maverick thing and declares that Alaska has seceded from the U.S. and will be its own independent nation. Palin becomes Vice President (even if it is only Vice President of Alaska) and Ted Stevens becomes President. Stevens hopes that by being President of Alaska he will be able to avoid going to jail. After watching Palin and Stevens, Illinois Gov. Rod Blagojevich immediately declares Illinois’ independence. Around the same time, dissenters in China challenge the status quo (independence isn’t openly discussed because in China execution is the penalty for sedition). Economically motivated riots break out in Vietnam and other parts of Southeast Asia. Seeing weakness in the EU, Russia continues to expand its influence. The Middle East remains a problem. But, in a moment of historic unity and at a conference sponsored by CNN and Anderson Cooper, Arabs and Israelis agree that nothing has changed and the “world will continue as we know it."