Retreat Hangover

The outside speaker at this year's retreat was Andrew Tilton, the senior economist at Goldman Sachs. His summary of the economy and the outlook for the near and medium term were sobering. The boost from the stimulus has ended, the federal budget deficit is growing, the need to devalue the currency is inevitable, the medicare system needs to be fixed, the Fed has only begun its tightening of rates, corporate profits are headed downward as productivity begins to decline, ad infinitem. He made a point of downplaying the effect of higher oil prices on the economy by pointing to a more troublesome issue, the huge effect that mortgage refinancings have had in boosting consumer spending and consequently, the business sector. Tilton and other economists view the drying up of the mortgage refi market as a more troublesome issue as the economic recovery tries desperately to gain traction. As for the one bright spot in the economy thus far, housing, Tilton believes the "bubble" (yes, he used the term "bubble") began six months ago when he and other economists witnessed the irrational rising of home prices soon after a rise in mortgate rates; this was on top of analysis showing the widening and untenable gap between income levels and housing prices. He and others believe that housing hotspots like the Bay Area are due for price declines but is of the opinion that such declines will be spread out over a couple of years.