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Is the Economy Slipping Into a Recession?

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    Harvard University Professor of Economics Martin Feldstein on the outlook for the economy.

  • Duration 4:03
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Well just -- tax increases are kicking and we find out that the economy contracted in the last quarter.

And even President Obama -- admitted the tax increases are just the wrong medicine for shrinking economy.

So could we -- kick starting a full blown recession by the new taxes on businesses and individuals.

Let's has Harvard professor Martin Feldstein who served as president and CEO of the National Bureau of Economic Research which designates whether the economy is -- is not in a recession Marty good to see thank you for coming in.

Good to be back with you so.

Just general question -- do you feel like -- sliding back into recession -- you calculated the last one before was announced officially.

Well I think it's much too early to say I mean.

What we have here is a so called advanced number.

It's gonna get revised -- the government gets better data on exports.

Better data on inventories.

It could swing plus or minus a percentage point.

But it's clear the economy is quite weak the consumer.

Consumer confidence numbers that we got the other day down sharply.

And the consumers gonna take a big hit because of the increased payroll tax and the higher personal income taxes.

Now the folks who say this is an anomaly point out to some good good points and consumer spending is is not doing -- for durable goods orders were up.

Business investment is up in capital spending whole building is looking pretty bright even though prices.

Came down to take last quarter so there are improvements in the economy that may be worked worked into this number.

And that's all true.

But that is the basic fact is that last year 2012.

GDP growth.

Fourth quarter of 2011 to fourth quarter of 2012.

Was only one and a half percent so there's no -- momentum there.

And we got a boost to consumers' incomes -- the fourth quarter -- course people anticipating.

A higher tax rates.

-- her.

Paying out more in compensation more in dividends.

And that's gonna turn around as we come into the first quarter of 2013.

But the tax increases as I mentioned in the intro to do I even the president said you know when -- where you have a shrinking economy -- slow economy.

You don't want to increase taxes that's exactly what we're doing.

Both on the retail -- the wholesale level if you will both fund on.

You know average working folks in and rich job producers as well.

Be absolutely so I think as we try to tackle our as the congress and the administration try to tackle.

The deficit problem they have to be very careful not to make the mistakes that were made in Europe.

-- much too much short run contraction.

We need to have a policy that will over the coming decade.

Bring down the size of the fiscal deficits but not over the coming year.

All right finally on the Fed -- so we have assured because he had -- breaking news service segment but.

The Fed itself you haven't been a big fan of what the Fed has been doing recently why do you think the Fed.

Is going in exactly the opposite direction -- -- should be.

Well I think they're the -- just continuing to.

By assets senator tremendous -- with the remaining five billion dollars a month of trillion dollars they think that by doing that.

There helping housing they probably are but that's not sustainable I mean they've done they've pushed up house prices artificially.

By dried news com mortgage rates down to extremely low levels.

So.

I think that and they're taking serious risks.

About building up.

Too much liquidity.

In the banking system that's going to be very expensive.

And potentially dangerous.

To one line.

Professor Martin Feldstein we usually like to give a little more time we have some are breaking news are we had to -- is -- great to see you please come back soon.

Will do.

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