By Tracy Will
For WisBusiness.com
“It’s always nice to start out with a joke, but there’s nothing funny about this economy,” Chicago Federal Reserve researcher Bill Testa told the Smith and Gesteland Executive Speaker Series at Edgewood College Tuesday.
Despite the impact of losing GM in Janesville, Federal Reserve Bank of Chicago research V.P. Testa said Wisconsin has probably seen the bottom of this “Great Recession.”
“We are still on the downside of a burst ‘asset bubble’ in housing, stocks and a financial crisis different in character than what we’ve seen in the past several recessions,” Testa said.
Facing a negative third quarter 2009, Testa’s Chicago Fed Board researchers predict a positive GDP in the fourth quarter 2009, leading the country out of the “Great Recession” into a jobless recovery.
“Wisconsin never experienced the run-up in home prices that the rest of U.S. did,” Testa said. As a result it did not suffer home value declines as steep as those seen in Michigan, Minnesota and Illinois.
“The Midwest is on par with [unemployment in] rest of the United States. Michigan is the exception,” he said, despite seeing the highest unemployment levels since 1983.
“When you get above 10 percent unemployment, that’s a pretty severe labor market shock,” he said, and Michigan’s unemployment is very much higher.
Testa said unlike previous recoveries there will not be the burst of new car sales that led Michigan out of past recessions faster than its Midwest neighbors. Testa said this year homeowners are saving more to make up for assets lost during the 2008 market dive that sapped retirement nest eggs and home values.
“New cars are a low priority for households,” he said, and with high unemployment, Michigan will struggle the next 18 to 24 months to emerge from recession.
“This is a new experience for the rest of the United States, but not for the Midwest. We’ve been through it before. But for Michigan is really is deja vu all over again,” Testa said.
Asked whether the current economic stability resulted from congressional action in 2008, Testa said bailing out the big banks stopped a worldwide crisis.
“When the global financial plumbing had seized up, the infusion of capital was the most effective way to stop the panic. It was chaos and we had to stick our finger in the dike. The bleeding has seemingly stopped. Some banks are repaying their loans and some have been stabilizing. Investors are starting to invest again,” he said nodding to a past week of positive stock markets.
Did the bailout threaten capitalism?
“We are very far from a socialist economy, where the government owns the banks. We are certainly a co-owner , but it’s nothing,” Testa said, adding many banks have paid back their emergency loans.
