The U.S. economy is not doing very well according to Harvard economics professor Martin Feldstein. He says the economy is growing at “a snail’s pace” and that the recent jump was attributable to motor vehicle production.
In an interview with Bloomberg TV Feldstein said he was worried about a bubble in the stock-market because of the Fed’s low interest rates, and that there is still a probability of a recession:
On the danger of a bubble in the stock market:
“The danger is, like all bubbles, they burst at some point. Remember, Ben Bernanke told us in the summer of 2010 that he was going to do QE2 and then ultimately they did Operation Twist. The purpose of that was to make long-term bonds less attractive so that investors would buy into the stock market. That would raise wealth and higher wealth would lead to more consumption. It helped in the fourth quarter of 2010 and maybe that is what is helping to drive consumption during the first quarter of this year. But the danger is you get a market that is not with the reality of what is happening in the economy, which is, as I said a moment ago, is really not very good at all.”
On whether another recession is on the horizon:
“Anything I say is telling my views and nothing to do with the NBR’s business cycle dating committee. A recession is still a low probability, but there are a number of negatives out there. The economy is slow and weak. Then you add to that fact that Europe is sliding into recession. That is going to hurt our exports. You add to that the risk that the end of this year in there is a very large fiscal cliff, that is $5 trillion tax increase next year if new legislation is not passed. Nobody wants to see that happen, but it is a dangerous game of chicken that could happen after the election. So, I think that is something anybody who is thinking about investing, whether it is in the stock market or a business thinking about investing, has to ask, if that happens, if we are going to see that jump in taxes, that is going to push the economy next year into a serious recession.”
Watch the interview at Bloomberg TV: