YOU HAVE TO RUN AGAINST SPENDING, NOT THE ECONOMY:

Rational Exuberance: Strong GDP reports are on the way. (Brian S. Wesbury and Robert Stein, 10.20.09, Forbes)

Very early this year, when the consensus was predicting a 1% real economic growth rate for the third quarter, we were forecasting 3%. Now the consensus is up to 3%, and we are at 4%. Meanwhile, our forecast for the fourth quarter has jumped to a super-charged 5.5%.

Back in mid-July, we laid out the case for medium-term economic optimism, showing that production gains would come in the form of an end to severe inventory reductions, improving exports, a bottom in housing and modest consumption growth, propelling the economy forward at least through the end of 2010.

Now we think the case for medium-term bullishness probably extends deeper into 2011, as monetary policy is likely to stay looser for longer into 2010.