New president, Fed will determine U.S. economy, expert says at Palatine event
The U.S. economy is on a rocky path headed toward another recession, but that all could change depending on what the Federal Reserve decides later this year and on who is elected president, economist Robert Genetski said Thursday.
The Saugatuck, Michigan-based expert believes that the lack of liquidity, or money put into the U.S. economic system, during the last nine months, could lead to a recession unless the direction of the country changes soon.
"This isn't about zero percent interest rates, it's all about liquidity," Genetski said.
The economist and author addressed about 250 suburban bank executives and business leaders at the 12th annual economic breakfast, hosted by Cornerstone National Bank & Trust Co. at the Cotillion Banquet Facility in Palatine. The Federal Reserve did not raise interest rates during its meeting in September and economic leaders are wondering what will happen at its next meeting in December. The Fed's decision in September, and other global issues, have sent the stock market onto a volatile path.
But the stock market isn't what concerns Genetski now. It's money being put into the economy that could lead to growth.
"The future of the United States depends on whether we move toward economic freedom or join the rest of the world in another direction," Genetski said.
In Illinois, the rift between Gov. Bruce Rauner and House Speaker Michael Madigan has deepened so much that businesses and individuals will continue to leave the state for tax relief elsewhere, Genetski believes.
"I don't see a way out at this point," Genetski said. "Michigan got so bad with the wrong politicians and what has happened there, that they eventually elected people with pro-growth policies. Michigan now has made progress."
Continuing to increase taxes, especially on businesses, just doesn't work, he said.
"There should be no taxes on corporations, only individuals," he said. "That's like taxing the cow when it's the farmer who should pay the tax."
Genetski also predicted that interest rates for 10-year Treasury notes will be about 3 percent, the S&P 500 will advance to about 2,300, and inflation will be about 2.5 percent.
But that all depends on whether the Federal Reserve decides to change any of its policies. If it continues to buy securities, which add liquidity back into the economy, then that could be good. But if it decides to provide loans again to banks, which may not move that money back into the economy via consumer or business loans, then we could face another recession.
"That's why I am hedging my bets on the liquidity situation," he said. "Everything depends on that."
Cornerstone chairman and CEO Tom MacCarthy said he believes in the classic economic approach taken by Genetski.
"He's right on target," MacCarthy said. "Sure banks would love to do more loans. But regulations are a burden and spending on that every year is getting increasingly higher. Already, our margins are thin."