The Best and Worst Economic Forecasts of All Time

History is littered with flawed forecasts on economic trends. And where some have proven to have been surprisingly accurate in their glimpse into the financial and economic future, these projections have usually been scorned, until too late. Our current global economic crisis is a case in point.

Nouriel Roubini, the famed NYU economics professor, warned about the impending meltdown of the financial system and collapse of several prominent investment banks, all based on the asset bubble in residential housing and the vulnerability of subprime mortgage securitization. In response to his perceptive warning, he was mocked as "Dr. Doom." However, no one mocks Professor Roubini anymore.

In looking at the broad sweep of history, there are many excellent examples of disastrous economic forecasting. On the other side of the ledger, the number of prescient glimpses into the economic future are relatively few. Among this small, select group, however, there is one gem that conspicuously stands out.

In my view, the most accurate long-term economic forecast of all time was provided by the legendary Renaissance French seer, Nostradamus, usually more renowned for his prophecies on the end of the world. In 1548 Nostradamus predicted, "From Albion's shore shall come a marvelous contrivance: a carriage of silence bearing the arms of Rolles de Roi." Apparently, Nostradamus saw the creation of the Rolls Royce motor car in England, and its reputation for silent and prestigious personal transportation, more than three centuries before the invention of the internal combustion engine. Placed in a broader context, this clairvoyant perceived the creation of a massive new industry, automobile manufacturing, and the important future role of brand marketing in economics . Whether this forecast was based on research, intuition, a lucky guess or some inexplicable power of prophecy is unknown to me. Irrespective of his methodology, Nostradamus hit one out of the ballpark with this forecast.

In contrast with Nostradamus, perhaps the most inaccurate and inept economic forecast of all time was delivered relatively recently, by the Chairman of the U.S. Federal Reserve, Ben Bernanke. In October 2005 The Washington Post carried the following headline: "Bernanke: There's No Housing Bubble to Go Bust."

Yes indeed, Ben Bernanke, who had recently been nominated to succeed Alan Greenspan as chairman of the Fed, presented a confident prediction to Congress that the unprecedented rise in U.S. home prices did not constitute an asset bubble, and was based on sound economic fundamentals. The rest is history-and infamy.

One would think that the same Chairman of the Federal Reserve who arguably delivered history's most inept and erroneous economic forecast could never be reappointed as Fed boss by President Barack Obama, not in a million years. Guess again.

 

 

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Comments

[obitrey]

Ok so all that of that was to say that, while a noble gesture, to make these loans available to lower income people, it's a reminder, it is better to teach a man to fish, than feed him fish for day. Clintons administration realised that home ownership was, your perverbial foot in the door, of that elusive "American Dream", and decided that all the obsticals in the way, made for to long and tough of a path for people to endure. So he invented a short cut to bypass that, in effect stocking their fridge full of fish, and telling them, dont worry about us not teaching you to fish, it is so easy to learn almost anybody can do it.

So I just want to say, more/bigger goverment is rarely the correct answer to peoples problems...and.. A few hungry nights learning to fish is worth knowledge of how to provide for the future.

[obitrey]

Well this housing bubble was a result of Clinton era HUD program, that Bush exploited in an attempt to stem the economic impact of the 9/11 & Katrina tragedys. Clintons HUD program in its effort to make home ownership available to the lower income familys, created a flood of new, previously under qualified, buyers. As a result of that increase in demand, prices exploded in the home market, and since, many of these buyers were at best under qualified, the result were high risk loans stacking up on banks balance sheets. As a result of these banks coping with the inevitable wave of forclosures, they bundled these loans together, and shopped them to any buyer they could get. Which was working for them until intrest rates started to rise on those ARM's, putting in motion the first ripples of the forclosure nightmare that was to come.

......continued on next post......

[steppenwolfsayshi]

I feel like government officials never tell the truth about the economy anymore because it would constitute the dreaded "talking down the economy." Bush wouldn't admit there was a recession for an entire year. Bush, McCain and Obama claimed the TARP as a great success. Obama promised 8% unemployment and continues to say the recession is nearly over and the job numbers will improve. They go so far as to give false economic figures. Politicians never admit an economic problem until it is absolutely glaring and they must recant that they were wrong. Why are we really surprised Bernake would not admit there was a problem with the housing market?

[Ppossom]

Obama "promised 8% unemployment?" According to whom? Fox News? Limbaugh? Hannity?

[outnow]

How can a person be appointed head of the Fed with such a total misunderstanding or dishonesty if he knew and could not officially admit that the crash was looming. Many other financial experts correctly predicted this crash in residenrtial real estate. In 2004, I found it hard to accept that the market would not cool down but then began watching the behavior of lenders, borrowers, and mortgage loan brokers. By 2006 I was reading numerous books and articles specifying exactly what was coming. The only question for most of them was what system would replace the old one.

Where I live, the market was increasing almost 20% per year on average. Southern California coastal properties have held up to a great degree, unlike inland areas where the peak-to-trough will be as much as 65% in some areas by next year. The taxpayers took the hit finacially and while the rich will take a few years to recover, most middle to low income families will never recover.

[outnow]

How much of the decline in value has to do with market factors, the price of a house, the supply of houses on the market, the credit-worthines of the individual, the credit and income of the borrower/buyer, lending standards (if any) at that time. These market factors are capricious at best. Combined with other extraneous factors such as Mortgage-backed securities, i.e., derivatives, bad appraisals, dishonest loan brokers, fraudulenct ratings of bundles of securities to fuel the shadow credit market...liars's loans...

Supply and demand are not the drivers in the market given all of the other factors. Polictics drives this market. Little of the laws of supply and demand have much to do with purchase and sale of houses. Given tax credits for mortgage interest, supply and demand laws are a vast simplification of the situation.

The free market helps set price, not social policy. Without moral hazard, the laws of supply and demand are just minor factors in the destorted market. The value of the dollar, the rate of inflation. These are the real factors, not some sophomoric analysis of but a single law - supply and demand.