The Anti-Roubini

http://www.nytimes.com/2010/11/07/business/07gret.html?emc=eta1

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"The real problem is not whether machines think but whether men do." (B. F. Skinner)

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Gretchen Morgenson does an excellent job as a feature writer/editor for the NY Times on business and economic issues. We were happy to see over the weekend that she sought out an economist with the opposite position to Roubini's (always) depressing outlook (see our 11/6 post): Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Shepherdson warned his clients in the fall of 2005 that real estate would crash and a recession would ensue. We think that there only two kinds of economists now: those who saw the train wreck coming and those who didn't. So, we listen to Shepherdson.

Shepherdson sees the beginnings of a turn in the economy that could translate to a rise in gross domestic product growth and an improving employment picture in the second half of 2011.

The basis for his view is a shift in commercial and industrial bank lending. The trend is real and as it gains steam, small businesses should receive more credit "... for which they have been starved." And, since these "small" businesses employ half the nation's workforce, this credit expansion will translate into real employment gains.

Shepherdson: "The depression in small businesses explains pretty much everything in the weakness of this cycle ... I reckon in the last cycle they accounted for two-thirds of all new job creation ... they are better job-creation engines than big companies, which are more inclined to do their hiring offshore."

If Shepherdson is correct in his assumptions, we could achieve annualized GDP growth of 3% to 4% in the second half of 2011. In the meantime, the U.S. will bump along at 2% GDP growth with no "double-dip recession." As commercial and industrial credit eases up, it will unleash a pent-up demand among smaller companies for capital equipment, software, vehicles and other goods.

We noted with interest over the weekend that Fareed Zakaria had Paul Krugman on his "GPS" television program. Krugman remarked that, with the Republicans back in power in the House, we will be entering a period of "Herbert Hoover Economics." Nothing will get done to stimulate the economy - if anything, "deficits" will be reduced (we've even read that the Republicans have publicly stated that their goal will be to "starve" the financing for the new health care bill, which would effectively kill it.).

Meanwhile, Ben Bernanke has the Fed doing "QE 2" (most people of a certain ilk think of that term as meaning the newer version of a very famous cruise ship). Bernanke's PhD was on the subject of "The Great Depression" and his track record through "The Great Recession" has been historically right. The second "quantitative easing" (announced last week) is adding $6 billion to the economy and just in time for small business. So, while Congress "fiddles," Bernanke delivers.

Overall, we hope Shepherdson is right about when the economy gets better. We know Krugman and Bernanke are right.