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'2009 is not going to be a good year,' economist tells Hagerstown gathering

November 14, 2008|By JOSHUA BOWMAN

WASHINGTON COUNTY -- Last year, during a speech to local business leaders, economist Anirban Basu predicted that the nation's economy would take "a year or so" to recover from its slowdown.

During this year's speech, Basu made no such predictions.

"2009 is not going to be a good year," Basu said. "The second half will be much worse than the first, and the first half is shaping up to be really, really horrific."

Basu, the chairman and CEO of Sage Policy Group, was the keynote speaker Thursday night at the sixth annual Washington County Economic Summit, hosted by the Hagerstown-Washington County Chamber of Commerce and the Hagerstown-Washington County Economic Development Commission.

More than 200 people attended the event at Fountain Head Country Club.

The focus of Basu's speech this year was the recent financial meltdown, which he said can be traced back to spending and lending practices that started after Sept. 11.

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"In the future, many people will say that the current financial crisis is the economic event of the decade," Basu said. "But the economic event of the decade was 9/11."

Basu said consumer spending immediately after the terrorist attacks, an abundance of cheap credit and mortgages for people who shouldn't have gotten them helped bring the economy to where it is today.

Basu said he thinks the economy will get worse next year as banks tighten up lending and try to increase deposits.

Basu, who is known for giving speeches peppered with humor, explained the complication of the federal government's recent $700 billion bailout package in three sentences.

"All that's happening is we, the taxpayers, are lending banks money. And then we're saying, 'Lend it back.' But that's not going to happen," Basu said.

As an example, Basu noted that PNC Bank, after receiving a portion of the bailout funds, chose to buy a struggling competitor, National City Corp., rather than increase lending.

After talking about the plight of the banking industry, Basu joked that bankers in the audience might not been so keen on hearing him talk in the future.

"Almost every year, bankers sit in the front. We'll see next year. If they even come," Basu said.

Basu included in his speech some startling economic figures, noting that the Dow Jones is down 34.5 percent for the year, delinquency on subprime mortgages is as high as 20 percent and new car sales in Maryland are down 15 percent.

He noted that food inflation is 5 percent, and predicted a global food crisis next year, saying farmers will not be able to get the credit they need to finance their harvest.

Basu predicted that at least one industry will benefit from the financial crisis, however, noting that alcohol sales had taken only a modest hit this year.

"If you own a liquor store, you have a huge 2009 ahead of you," Basu joked.

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