Global Economic Crisis

Ben Bernanke, Larry Summers and Timothy Geithner, the Obama administration’s economic triad, are predicting a steady recovery from the Great Recession. The March employment numbers, suitably manipulated by PR spin masters, are being heralded as proof that the recession is over. Should we believe them? Well, let’s look back at recent history.

Just a few weeks ago, Bernanke’s predecessor as chairman of the Federal Reserve, Alan Greenspan, stated that “nobody” predicted that the subprime housing situation in the United States would lead to a financial and economic implosion. Greenspan said, “Everybody missed it, academia, the Federal Reserve, all regulators.”

Not everybody. Actually, a number of observers predicted what would ensue, well in advance of the financial disasters of 2008, which culminated in the downfall of Lehman Brothers. I include myself in that list which the former Fed chairman wished everyone would ignore. In a book published in 2006, two years before all hell broke loose on Wall Street, I wrote the following:

“The American economy will almost certainly, in the next presidential administration, come to a very hard landing. The decline in housing prices, which while ascendant created the illusion of national prosperity, is a clear and foreboding marker to a dark and austere future for the American people.”

Now that Bernanke, Geithner and Summers are preaching the gospel of economic green shoots, I published my own prediction in my book, “Global Economic Forecast 2010-2015: Recession Into Depression.”  The essence of my prediction is that massive U.S. government deficits, replicated in other major economies, will precipitate a devastating sovereign debt crisis by 2012, plunging the world into a synchronized global depression. If I am proven right, however, don’t expect the potentates of the Federal Reserve and U.S. Treasury to utter any mea culpa. If an economic depression does afflict us,  Ben Bernanke will likely mimic Alan Greenspan’s lame protestation that “nobody” could have seen such a disaster coming.

Though the New York stock market reacted in a celebratory way to the Fed issuing its effectively zero rate, more thoughtful observers are terrified. This is clearly another panicky response by the Fed, acting out of desperation rather than thoughtful analysis. If America through the Fed’s actions does indeed fall into a liquidity trap, the result will go beyond the severe recession already being forecasted. The likely result will be the protraction of the global economic crisis, with the U.S. economy crippled beyond the worst nightmares of even those predicting another Great Depression.

For the American economy, due to the Fed’s actions, the worst outcome possible is practically assured. The real tragedy is that the radical cuts in interest rates by the Fed under the reign of Alan Greenspan are now recognized as a cause of the mortgage meltdown that led to the current global economic crisis. For Ben Bernanke, current chairman of the Federal Reserve, to replicate his predecessor’s disastrous monetary policies is utterly inexplicable.