The year gone by has been pretty awful, and many say the prospects for 2009 aren’t much better. The governor of the Bank of Spain, to cite one example, recently declared that the entire world economy was facing a financial meltdown.

“The lack of confidence is total,” said Miguel Angel Fernandez Ordonez, who is also a member of the European Bank’s Governing Council. Interbank lending has all but shut down. Consumers aren’t buying. Businesses aren’t hiring. Banks aren’t lending.

Making predictions is especially risky this year, given the unprecedented nature of what we’ve already been through. But hey, that doesn’t mean this column should shrink from the end-of-the-year ritual of fearless prognostication.

The main subject is the economy. Will it take years to recover? No. I’m on the side of those who see a recovery starting in the middle of 2009, although the process will be slow. The housing market will bottom at about the same time as the economy.

The stock market? I think the Dow Jones industrial average could close the year close to 10,000, but I’m usually too optimistic on that score. Still, the financial markets usually recover several months before the economy bottoms. Stocks could come back fairly fast.

The economy may be about to plummet from the cliff, but I don’t think so. That is, I don’t think we’re headed for another Great Depression, as so many people seem to suggest.

During the Depression, there were hundreds of bank failures. Deposit insurance didn’t exist. Today we have deposit insurance, and so far there have been less than three dozen bank failures.

During the Depression, the Federal Reserve cut the money supply. Today, the Fed is increasing it at a rapid pace.

During the Depression, Congress jacked up tariffs to extreme levels. Today, tariffs are relatively low.

Barack Obama says fixing the economy may take years, and many economists agree. But that depends on how extensive one’s definition of “fixing” might be, and doesn’t mean a recovery can’t start next year.

The recession, as dated by the National Bureau of Economic Research, is already about a year old. If it ends in June, that would give it a duration of 18 months – pretty long for a downturn in the post-World War II period.

And let’s keep things in perspective. As Fred Mitchell of Mitchell Capital Management in Kansas City points out, by historical standards this downturn has been relatively mild, at least so far. Unemployment stands at 6.7 percent. Mitchell thinks the economy could bottom as early as March, although he acknowledges that we’re in “totally uncharted territory here.”

Despite the credit crunch and the gyrating markets, we have a few things on our side, as the blogger Jimmy Pethokoukis notes.

A big one is falling oil prices, which percolate through the economy like tax cuts. Falling gasoline prices are already providing a stimulus of about $350 billion.

Mortgage rates are down, helping the housing market and restoring employment in the mortgage-servicing industry. Lower rates have already sparked a new surge in mortgage applications.

The Federal Reserve has pushed down interest rates to near zero and is pumping money into the economy. As Mitchell noted, there’s a lot of money sloshing around out there.

The Treasury Department is considering a plan to push rates down to 4.5 percent for homebuyers, and perhaps for those seeking to refinance as well.

Obama’s stimulus package should provide some help for unemployment, even though it will be accompanied by tremendous waste. Count on it: Congress will treat the stimulus package not only as a way to boost the economy but as an opportunity to reward favored groups.

The economy will worsen in the first part of the year, but by the end of 2009 things could look much brighter than they do today. But of course I’m an incurable optimist. Happy New Year.

E. Thomas McClanahan is a member of the Kansas City Star editorial board. Readers may write to him at: Kansas City Star, 1729 Grand Blvd., Kansas City, Mo. 64108-1413, or by e-mail at

Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.