Agricultural and Food Policy
 Agri Outlook
Radio
Number 121
Policy: The Risk of Recession Is Elevated (2:44 minutes)
Audio/Video Script:
Dr. Bobby Coats
Extension Economist
University of Arkansas, Division of Agriculture
Congressional Budget Office report notes that the risk of recession is
elevated. I’m Bobby Coats Extension Economist University of Arkansas Division of
Agriculture.
The Congressional Budget Office (CBO) has examined the economic setting and
options for dealing with the overall U.S. economic weakness. The economic
weakness is due in large part to the crisis in the home mortgage market.
The Congressional Budget Office findings are as follows:
- The economy may avoid a recession in 2008, but the risk of a
recession has risen.
- There is no guarantee that the Federal Reserve’s powerful tools
will be able to keep the economy from entering a recession.
- The federal budget with its built in system of automatic
stabilizers will act to stimulate the economy in a period of economic
sluggishness. This will help mitigate any economic downturn.
- If additional financial stimulus is deemed necessary.
- First, make sure that the actions take effect when
stimulus is most likely needed and
- Second, make sure they are designed to increase economic
activity as much as possible for a given budgetary cost.
- The most effective types of fiscal stimulus are those that
direct money to people who are most likely to quickly spend the bulk of any
additional funds provided to them.
- In evaluating the options for helping people who have been
adversely affected by the problems in the mortgage market, strike a balance
between helping financially distressed families, being fair to other
families, and not rewarding imprudent behavior that might create additional
costs in the future.
- Further declines in housing prices are probably necessary to
correct imbalances in the economy, and policies that attempt to prevent
market prices from correcting could make the situation worse.
The Congressional Budget Office paper “Options for Responding to Short-Term
Economic Weakness,” first reviews the economic situation, next it assesses
different fiscal approaches to giving a temporary boost to aggregate demand in
the economy, and the final section examines policy options geared specifically
toward the housing and mortgage markets.
This has been Bobby Coats Extension Economist University of Arkansas Division
of Agriculture.
Publication: CBO Paper - Options for Responding to Short-Term Economic Weakness, January 2008
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