Are We Heading Into an Economic Depression?
September 16 2008 / by Alvis Brigis / In association with Future Blogger.net
Category: Economics Year: 2008 Rating: 3
Pundits and bloggers are once again throwing around words like “crisis” and “depression” in reaction to yesterday’s core stock market meltdown that included the largest bankruptcy in world history – Lehman Brothers, the unexpected bargain priced sale of stalwart Merill Lynch to Bank of America, and a near collapse of AIG , the nation’s largest insurer. To top it all off, a Fed report detailing falling U.S. industrial production levels has sent shivers spidering through all sectors and global markets.
The truly worrying part is that this hiccup is not related to high oil prices, which have fallen off considerably in the past month, but instead the ongoing home mortgage collapse which some predict will cost us in the $1,000,000,000,000 (IMF estimate) to $2,000,000,000,000 (Goldman Sachs) range. This confirms that we are deeply vulnerable in at least two separate yet critical areas, making any subsequent surprises all the more worrisome for fear of a chain reaction or even a fourth turning.
The Trillion Dollar Question: Just how bad is this going to get?
According to the big-wigs, the situation is ugly but not entirely hopeless:
Presidential candidate Barack Obama says, “I don’t think that we’re … necessarily going in the direction of the Depression. ... There are some similarities, though, to what happened back in the late 20s and early 30s and what’s been happening now, and the biggest similarity is how we’ve been dealing with Wall Street and what’s happening in the financial markets.” – Reuters
U.S. Treasury Secretary Henry Paulson acknowledges that we’re going through a difficult time and that housing is “at the root” of the troubles but that we’ll get past those “in months as opposed to years.” – Bloomberg
But he also admits that “We have an archaic financial regulatory structure [that] really needs to be rebuilt ”, which evokes the fourth turning specter.
Former Fed Chairman Alan Greenspan, seems to concur with the notion of a period of deep shift:
“This is a once in a half century, probably once in a century type of event. We shouldn’t try to protect every single institution. The ordinary cost of financial change has winners and losers.” – Bloomberg
This, of course, has some business writers making comparisons to the Great Depression. and some Nobel laureates agreeing that it will be bad, but not quite as bad as 1929.
But enough of what they think. What do you think?
also as a major factor in U.S. profligacy and in U.S. economic decline. To a large extent, the false U.S. affluence of the last decade has been underwritten by China, in two ways: the country has supplied American consumers with cheap toys, gadgets and clothes; and has been bailing out the federal government by purchasing U.S. debt.