There is no question the economy will get worse before it gets better.  But remember that the stock market turns around six to eight months before the economy bottoms out.  I expect the economy will be a disaster in the fourth quarter, and the first quarter of next year will also be very slow.  We will see a bottom in the economy in the second quarter, although GDP growth may still be negative.  By the third quarter GDP will be growing, and by the fourth quarter growth will be about 3%. 2010 should be strong.

I do not see a threat from inflation.  Commodity prices are down.  Oil prices are low – WTI is at $58.30 today and Brent is at $54.92.  Wages are down, lessening the likelihood of demand-driven inflation.  The deficits that will result from increased government spending will substitute for a lack of private spending, and will not push the economy toward inflation.  There is very little private debt being issued– corporations cannot borrow in this environment – and this gap will be replaced by government debt, which is what people want to hold.

No, the government should not bailout the automobile industry.  That would be a bailout of the United Auto Workers (UAW) and the union’s health programs.  The auto makers should go the same route that the airline industry did, where virtually every major company went through bankruptcy.  Bankruptcy is a great catalyst for corporations to undertake the right kind of reforms.  The UAW needs to renegotiate their health benefits now, because they would be at great risk in a bankruptcy.

Yes, there will be massive spending on infrastructure and alternative fuels, along with tax cuts. This will provide the necessary job growth and will substitute for the lack of private consumption.

What is happening in China is very important, too.  Will they continue to buy our government debt?  Will they move toward an import- or export-oriented economy?  It is better for us if they stay export-oriented, because we need their cheap goods.

I did turn down that offer, which was made in August.  I saw there was no hope that Congress would act on and approve my appointment before the end of the previous session.  Since all outstanding nominations must be resubmitted, I would have had to go through the process again in the next Congress.  I have no idea whether I will be offered a role in the new administration.

Basically, all my long term money is in a diversified portfolio of international equities.  It is weighted toward dividend paying stocks, which are the ones I believe will outperform in the long run.