Speaking from the top floor of the SunTrust building here, Mark Zandi, addressed members and guests of the Richmond Association for Business Economics (RABE) today with a speech entitled, “Righting the Wrongs”.

Zandi often quoted here and throughout the world, was greeted with much anticipation by many business professionals and academia. Mark Zandi is the Chief Economist for Moody’s Analytics and the author of his “Financial Shock” book series, which successfully predicted the recession in 2007.

To summarize, Mark Zandi believes:

• Economic growth will improve with an increase in the Gross Domestic Product (GDP) to 3% in the 4th quarter of 2011, increasing to 4% in 2012.
• Unemployment will fall below 9% by the 4th quarter of 2011, decreasing to 7% by the 4th quarter of 2012.

Zandi quotes several logical conclusions based on improvements to household debt reduction, deleveraging, credit quality, and stabilization in the housing and job markets.

“If the rate of deleveraging continues to decrease”, stated Zandi, “household debt burdens will be at record lows by 2011 improving household credit quality”. As a result, “the credit environment will shift rapidly allowing lenders to loan more money to households and businesses”, stated Zandi. “Large banking organizations are very well capitalized, such as SunTrust in Richmond, and very profitable due to improved credit quality and good profit”, Zandi continues. As a result, these trends should improve our economy.

Although Mr. Zandi was very positive regarding US economic growth, he mentioned four risks that might stall his projections.

1. Housing market

- At this time, “14.2 million households are underwater, half by 20%. At this point, there are strategic defaults because (continuing payments) doesn’t make financial sense, causing more defaults and price declines”, stated Zandi. Another point Mr. Zandi made is the need for collateral by small businesses, which often use their homes for collateral.

2. Job market
- “Businesses are no longer laying off. However, companies are not hiring like in a normal market, “stated Zandi, “Maybe this is due to the lack of lending to small businesses. If hiring does not pick up, recovery will not formalize.”

3. Overseas
- According to a recent trip to Europe, Mr. Zandi stated an “amazing divergence of views concerning Europe based on home bias. If Europe gets nervous, the US will get nervous as well”.

4. Fiscal debt
- “We will have to make changes to our fiscal policies”, stated Zandi, “in the next three years or the rates will increase in 2012 and 2013”.

In closing, Mr. Zandi stated that "with luck and wise policy changes, " the economy should continue to improve. Let us cross our fingers.

Paying the Price, Mark Zandi’s newest book, is available after September 24 and can be pre-ordered on Amazon.