Expert says the economy will rebound

Likening the last financial year to an "unbelievable roller coaster ride," economist Robert Genetski addressed several hundred people Wednesday at an economic forecast breakfast in Arlington Heights, sponsored by Midwest Bank.

"If you look at a graph of stock market performance for the past year, all of the wiggles look like an electrocardiogram and for the last couple of weeks, it has looked like the patient is in cardiac arrest," he said in his opening remarks.

But by the end of his talk, he had given his audience reason to be optimistic about the future, as long as political leaders adhere to the classical economic principles of low taxes, free markets, stable prices and protecting individual property rights.

"Even God doesn't ask for more than 10 percent. Doesn't it make you wonder who some of these politicians think they are?" he quipped.

Genetski, one of the more bullish economists, is a policy adviser to The Heartland Institute, a public policy research group based in Chicago, and head of his own economic consulting firm, Classical Principles, based in Michigan.

He blamed an overly restrictive monetary policy on the part of the Federal Reserve last spring and summer for the current situation, combined, of course, with the subprime mortgage problems.

And since it usually takes six to nine months for Federal Reserve interest rate adjustments to be felt, he said that it will be the middle of 2008 before we truly start to see the positive effects of the Fed's recent moves.

"I expect weakness in the first half of the year and then I expect things to start to turn around by the second half," he stated.

"So if you need to borrow money, I suggest you do it between now and the middle of the year at a fixed interest rate and for as long a term as possible. Next year I believe that interest rates will be much higher," he said.

Stocks are currently selling for only half of what Genetski believes they are worth, so it is a good time to buy. He expects that stocks will begin to rise in about three months as the market begins to anticipate the recovery.

"The stock market is always risky but I don't believe that there is any greater risk now than we have had in the past," he stated.

Housing, on the other hand, will take longer to recover, Genetski said. He believes it will take another full year or two to work off our excess inventory of houses.

As for the current plan endorsed by President Bush and congressional leaders to issue checks to people to boost the economy, Genetski called it "ridiculous," saying a tax cut would do more good.

"Demographics are also working against us with millions of baby boomers retiring and drawing on their Social Security and Medicare benefits at a time when there won't be very many people between the ages of 21 and 65 paying into the system," he said.

"There is a solution, however. There are millions of workers south of the border who want to come here to work and pay taxes. I predict that in the future instead of building fences, we will be building welcoming centers."