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Dr. Irwin Kellner, noted economist and longtime Port Washington resident, recently spoke on the subject "The Economy and You" at the library.

A large number of Port Washington residents turned out to hear noted economist and longtime Port Washington resident Dr. Irwin Kellner comment on the current (dismal) state of the economy. The program was sponsored the Friends of the Library (FOL).

Kellner began by giving an historic overview, saying, "The economy is in one of its periods of serious decline." He said that this is the tenth such decline since World War II, noting that younger people have only seen what he described as "minor ones." He recalled living through the economic downturns of 1972-3, 1982-3, and especially 1957-58. He pointed out that it takes about six to nine months for the National Bureau of Economic Research to officially declare a recession, and opined that the downturn probably began as early as the beginning of 2008. Kellner commented, "It is nowhere near as bad as the Great Depression, but it may be as bad as in 1982-3." Elaborating on that subject, he said, "Contrary to popular belief, the 1929 stock market crash did not cause the Great Depression." He pointed out that it was policy errors that turned a downturn into a depression, and expressed optimism that we would not make the same mistakes. He said, "The government and the Federal Reserve are working very hard to avoid a depression." Among other policies, they have kept interest rates low, thus increasing liquidity, and have provided the stimulus of tax rebates.

Kellner went on to say, "I am a student of the real world. As I drive back and forth from home, I am delighted to see the price of gas coming down. That is not only providing money in people's pockets, but it also gives confidence."

Regarding the new administration, Kellner said, "I am very pleased with Obama's team and with how he got to work right away to present a proposal to Congress. I am especially impressed with the good people behind the scenes like Warren Buffet and Paul Voelker." Kellner told his listeners that we can expect a stimulus package of $300-500 million targeted so that it will go into the economy right away in the form of such things, for example, as unemployment benefits, food stamps, and aid to state and local governments. Kellner commented, "This guy [Barack Obama] has a handle on economics. There only two others who have had this: Bill Clinton and Jack Kennedy." He added, "You can't do anything else until you fix the economy."

Kellner said that one of the things that he would like to see the government doing is to make it a condition of the money given to the banks that the banks have to lend money. He said, "Right now the banks don't have enough confidence to lend to each other. The government should force them to lend to each other and to businesses and consumers."

Turning to the root causes of the current decline, Kellner opined that the bursting of the housing "bubble" was fundamental to the current circumstances. A large part of the problem, he said, was that the banks did not carry the loans on their own books, but laid them off in the form of mortgage-backed securities. He said, "It was a good idea, but it got out of control. No one really knows what mortgage-backed securities are worth." In addition, said Kellner, the price of homes got out of hand, especially in this area, where the price of the average home is approximately three and one half times income. In Nassau County at the peak, he said, the price of an average home rose to about six and one-half percent-"completely out of control." Kellner strongly believes that the price of a home should be related to the ability of people to pay.

Kellner said that he is troubled by the long-term consequences of what is going on now. He said, "The government is bailing everyone out." Kellner warned that today's government actions, if we are not careful, could include inflation. He said, "We are laying the groundwork for one heck of an inflation unless the Fed [The Federal Reserve] takes back some liquidity."

Kellner ended his presentation with some guidelines. First, he said, "Cash is king. No matter what you want to buy, if you have cash you can practically name your own price. Don't be afraid to bargain, even in department stores." In addition, he advised, "Don't look at your 401K. The market will come back, and sooner than you think." As for investments, he counseled, "Put your age in bonds." That is, the percentage of your income invested in bonds should be your age: 40 percent at age 40, 60 percent at age 60, and so forth. Finally, he said, "Don't worry about Social Security. It is safe; it is not running out of money."

A lively question-and-answer period followed. To one person who wanted to know if the bailout is sustainable, Kellner responded, "We are going to run a very big deficit. We have the luxury of having a currency where people around the world are willing to buy. If they don't, we could be in trouble." Other comments included a prediction that there will be more regulation; an acknowledgement of the fact that not everything the new administration tries is going to work ("Not everything FDR tried worked"); and elaboration on his forecast that the stock market will come back, most likely by the second half of 2009; and the opinion that there should be no tax increases at this time. One questioner wondered about the relationship between gas prices and the environment, pointing out that the lower the gas prices, the more driving, and vice-versa. Kellner speculated that perhaps there should be floor on gasoline prices, with the difference between the floor and the market price being used for alternative energy exploration or other purposes. One resident observed that the overwhelming majority of the people who attended the presentation were seniors. He asked rhetorically, "Does this mean that younger people are not interested?"

Kellner, who has been a featured speaker at other Friends of the Library programs, is chief economist of Market Watch and a Distinguished Scholar of Economics at Dowling College. He appears regularly on Channel 12 News as well as other television programs, and is frequently quoted in the press. He serves on the board of North Shore Health Care System and the Planning Board of the Village of Port Washington North.


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