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Has the Government Sowed the Seeds for Green Shoots or Another Depression?
Note: To those who think that
keeping quiet about bad news and gloomy forecasts will help the economy
recover, or that talking about them is unpatriotic, please read this.
You probably heard that Nicu Harajchi - CEO of N1 Asset Management - told CNBC on Friday that we're heading into a full-blown depression.
You may have heard that Paul Krugman said a couple of days ago that the collapse in global trade is worse than during the Great Depression.
But surely the worst is over, and the government has done what is necessary to help our economy recover. Right?
Well, if you get most of your financial news from the tv or newspapers, you might not know what other experts have been saying.
As I wrote in February:
The
International Monetary Fund (IMF) is the organization that audits the
books of countries world-wide to determine their real financial health.
The IMF is also responsible for bailing out countries in trouble, and
stabilizing the world's economic systems.
The IMF has also performed a complete audit of the whole US financial system, and therefore has a clearer idea of American finances than just about any other organization.
So the fact that the head of the IMF is saying that the world's advanced economies are already in a depression carries great weight.
He is not alone. The following people have also said we are already in a depression:
- Nobel economist Joseph Stiglitz
- The former Secretary of Labor
- Leading investment advisor Ray Dalio
- Well-known investment advisor Doug Casey
- And many others.
As I wrote in June:
- On May 11th, U.S. News & World Report pointed out that bank loan loss rates will be much higher than during the Great Depression
- On May 7th, Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb said
"The current global crisis is “vastly worse” than the 1930s because
financial systems and economies worldwide have become more
interdependent."
And as I have previously pointed out:
The following experts have said that the economic crisis could be worse than the Great Depression:
- Fed Chairman Ben Bernanke
- Economics professors Barry Eichengreen and and Kevin H. O'Rourke (updated here)
- Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb
- Former Fed Chairman Paul Volcker
- Nobel prize winning economist Joseph Stiglitz
- Economics scholar and former Federal Reserve Governor Frederic Mishkin
- Well-known PhD economist Marc Faber
- Former Goldman Sachs chairman John Whitehead
- Morgan Stanley’s UK equity strategist Graham Secker
- Former chief credit officer at Fannie Mae Edward J. Pinto
- Billionaire investor George Sorors
- Senior British minister Ed Balls
Am I saying that there is definitely another Depression ahead?
I hope not.
What I am
saying is that the government's actions to date have not fixed the
underlying problems or helped stabilize the economy. The government has
been doing all of the wrong things and made the situation worse by,
among other things:
(1) Throwing trillions of dollars at the "too big to fails", instead of admitting that many of them are insolvent
(2) Undermining trust of nations all over the world in the American economy
(3)
Failing to restore Glass-Steagall, reign in credit default swaps, or do
anything else necessary to stabilize the financial system
(4) Attempting to restart high levels of leverage and securitization
(5) Failing to take real measures to decrease employment and increase manufacturing
(6) Creating an enormous debt overhang and trashing our currency
As Stephen Roach - Chairman of Morgan Stanley Asia and former chief Morgan Stanley economist for the U.S. - said a couple of days ago:
Those who are looking for a “V”-shaped recovery are in for “a rude awakening."
“The imbalances going into the crisis were large to begin with. Now, they are bigger than ever.”
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IT'S ALL BY DESIGN. A simple question, if we all sat around drinkin' a beer could we come up with a better program for growth?
What is most disturbing is the government media complex giving people a false sense of security and absolutely no proper information on how to prepare for the worst.
There is no need to panic but everyone should be prepared for the days when banks are closed indefinitely, when ATMs are out of cash, when gas stations are out of fuel, when grocery stores are out of food and so on.
At least in the last century there was a sense of survival, a much stronger connection within the family and the community. Common sense was something that people understood and expected.
I dare make a prophecy.
When the shit hits the fan, the dumb downed masses will quickly turn on each other and realize it is a dog eat dog world and only the fittest and strongest will survive. A worthless Dollar or a broke government are the least things anyone should worry about.
It can't be fixed and yes, we're doomed for epic fail.
It's a guaranteed depression
The Federal Reserve may be successful in slowing down the rate at which it occurs but they cannot halt it.
Don't be fooled by the rally in equities. Eventually it will come to an end and resume the downward course. And then it will be obvious to all that we are really in a Depression.
That's when the fun really begins!
Gee. No nationwide crop failures, no huge natural disasters, no devastating war but we are in another depression?
Who's fault is this?
Answer: A dishonest/unstable banking and money system.
I wonder how many more depressions we can survive assuming we survive this one?
I've been very curious as to exactly when the term " GREAT DEPRESSION " was first coined for the 1930s version. Surely, it was after the market crash of '29 and Hoover's departure. So the dividing line between recession/depression must be the extended period of high unemployment , bank failures and negative GDP. It must be an economic rear view of severity. And since all three of the aforementioned stats have been manipulated.......who knows ??
However, real estate CAN safely be defined as being in Depression . And that will continue to drag on GDP, banks and jobs.
But the real kick in the ass is the administration's commitment to low income home ownership affordability ......Obama continues to ramp it up with taxpayer subsidies and 3.5% down. In its most basic terms, the government is confiscating irresponsible lending from the private sector and slapping some lipstick on the very same pig that oinked us into the Great Recession.
We are easily in Depression-Lite, but the real damage cannot be known until the bank losses are accurately revealed. And so far, that's information that has been coming one failure at a time.
The drip, drip, drip continues until the dike fails.
I was at my wife's 20 year high school reunion this weekend. An old classmate said he's in commercial real estate in Atlanta, then he corrected himself by saying he WAS in commercial real estate. We went to the Mall of Louisiana (the economy here is much better than Blue States), my wife said the foot traffic was better than 3 months ago, but I noticed VERY few bags and, after I pointed that out, she agreed. It seems the general public is willing to admit this economy is really bad, but politicians, policymakers and promoters keep going to the well with the pump job. The stock market? The harder the MM's pump it, the harder it will fall. We are witnessing a generational death of equities. Consider this the preface to the unfolding novel.
you should indicate "former" in regards to rosie.
Fixed, thanks.
This conclusion is so obvious, it's almost silly to assume anything else. And yet, few talking heads realize this simple and obvious truth.
You need not look further than the Cash for Clunkers fiasco for a great and timely example. Keynesian-based demand was provided by tax payer money, which temporarily increased economic activity, and resulted in an even greater imbalance after the stimulus ran its course, that being: net decrease in demand, increased output by car manufacturers, less buyers moving forward, and less resources for other economic activity due to robbing of the tax payer for said inscentives.
Economic Stimuli are cash for clunkers on a massive scale. They increase economic activity, but they really end up distorting the economic environment for the worse, while wasting resources in the process. The long term consequences of this, whether it will be a 'depression' or not, will be Worse than had these government interventions ('stimuli') in economic activities not occurred in the first place.
The real problem with Cash for Clunkers is that it provides no tangible benefit for the cost. If the government engaged in Keynesian stimulus by building true high-speed rail corridors (not this 65 MPH crap) up and down both coasts, we would not put people to work, but we would wind up with something useful at the end of the program. Nationwide broadband internet access would be another example of a useful stimulus.
FRONTLINE Presents
The Warning
Tuesday, October 20, 2009, at 9 P.M. ET on PBS
http://www.pbs.org/frontline/warning
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
http://www.pbs.org/wgbh/pages/frontline/warning/