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Posts Tagged ‘economic depression’

My Prediction Of A Global Economic Depression By 2012 Is Being Terribly Vindicated

August 11th, 2011 Comments off

In 2009, I published a short book entitled “Global Economic Forecast 2010-2015: Recession Into Depression.” At the time I made my original forecast, sovereigns across the globe were accumulating massive levels of public debt, unprecedented in economic history, with supposedly two objectives in mind: 1. stabilize the world’s banking and financial systems, which were in danger of total collapse after the implosion of Lehman Brothers and the near extinction of other investment banks; 2. compensate for a fall-off in private sector demand through stimulus spending in order to halt the free-fall contraction in GDP.

The policymakers cheered their actions, which essentially transferred the bad debts of the private sector onto  the publics’ balance sheet, and created a new modality in sovereign fiscal policy, which I  named “structural mega-deficits.” I did not share the optimism of the policymakers in the United States, United Kingdom and across the Eurozone. The premise of my forecast was that this massive rise in public debt to GDP ratios among the advanced economies would at best buy, at very high cost, a short period of stabilization at a level below peak economic performance. Eventually, however, the level of sovereign debt would exceed the capacity of the afflicted economies to sustain, leading to a full-fledged sovereign debt crisis towards the latter part of 2011. This would precipitate, by 2012, a global economic depression.

The current developments involving the European debt crisis, downgrading of U.S. government debt by S&P and the volatility in the equity markets are tracking to a high degree of exactitude my original forecast, dating from 2009. If these developments continue to track as I expect, my prediction of a global economic depression by 2012 is a virtual certainty.

Is it possible for my forecast to be wrong? Obviously, any prediction about the future can be incorrect, or distorted by unforeseen events. However, one important factor makes my forecast more likely to be proven correct than in error. Unlike the original global financial crisis of 2008, policymakers and central bankers across the globe have largely run out of policy bullets. They lack the fiscal integrity or capacity for further debt expansion to underwrite massive levels of new borrowing  required for future bailouts  of banks, financial institutions and especially larger sovereigns such as Italy and Spain, not to mention the U.S. and U.K. and possibly Japan.  The recent announcement from Federal Reserve Chairman Ben Bernanke that a zero interest rate policy will be maintained for at least another two years is a clear signal that the policymakers realize that their wild gamble with fiscal and monetary policy has failed, and they are baffled as to what options remain for them to exercise. Markets are beginning to render their  own assessment on the results wrought by the policymakers since the origins of the current global economic crisis.

The failure is not only on the level of fiscal and monetary policy. As strongly inferred in the downgrade of U.S. government debt by ratings agency Standard & Poor’s, the democratic political system  in the United States, and by extension in the U.K. and Eurozone, has been rendered dysfunctional due to general ineptitude, economic ignorance and ruinous internecine political conflict.

With a failure of both policies and leadership, I see no hope for preventing an inevitable global economic catastrophe, the likes of which has not yet been witnessed on this earth.

                 

 

Belief that U.S. is in an Economic Depression is Growing: Paul Krugman and Ambrose Evans-Pritchard Join the Chorus of Gloom and Doom

July 6th, 2010 Comments off

Just in the past week, economic media pundits as diverse as Nobel laureate Paul Krugman, who writes for The New York Times, and Ambrose Evans-Pritchard, the international business editor for the British newspaper, the Telegraph, have warned that the United States is already in the initial phases of an economic depression. Their chilly characterization of the U.S. economy after more than a year of the Obama stimulus, preceded by TARP, is sterile is its uninhibited gloominess.

In the case of Paul Krugman, his focus is on the disastrous unemployment rate in America, and his conviction that fiscal crisis and deficits be damned, the U.S. must borrow and spend whatever it takes to drive down the unemployment rate, or face an even more grave economic emergency. As I have stated before, while I concur with Krugman’s description of the American economy, I don’t think his prescription is supportable, based on the mathematical realities and the fact that excessive private debt sparked the global financial and economic crisis.

Ambrose Evans-Pritchard’s most recent column had the melancholy headline, “With the U.S. trapped in depression, this really is starting to feel like 1932.” He lays out the case for why the U.S. is in the throes of a depression; dismal home and retail sales, collapsing state budgets and the resulting fiscal cuts abetting even more bad economic indicators. In his eyes, the only hope are the central banks engaging in another round of quantitative easing (being dubbed by some as QE 2) and debt monetization, the inevitable inflation actually being preferable to a deflationary spiral.

What is clear from reading these two esteemed economic observers is that very intelligent economists are losing hope over the state of the U.S. economy (which also means the global economy) and in their despair are grasping at extraordinary policy measures that are likely to further exacerbate all the macro-economic indicators they are rightfully perturbed by. The concluding comments in Evans-Pritchard’s column sum up the dire gloom that permeates his appreciation of the situation:

“Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.”

Alan Greenspan, Ben Bernanke and the Coming Economic Depression

April 5th, 2010 Comments off

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.

Why I Predict a Global Economic Depression by 2012 in My New Book

November 11th, 2009 Comments off

Economics is a social science, not an exact science.  Theories on how a nation’s economy and financial system should function  proliferate the body politic, ranging from Reagonomics to Keynesian pump-priming. However, as the past year’s global economic crisis has demonstrated, dogmas and theories, such as market fundamentalism, are largely impotent in the face of brutal economic realities. It was not out of conformity with a particular economic dogma, but rather sheer panic, which drove  key policymakers in major advanced and developing economies throughout the world to plunge their nations into unprecedented levels of public debt, all in a frantic effort aimed at halting the free fall collapse of the global financial system that had erupted after the downfall of the investment bank Lehman Brothers.

One year later, throughout the world and especially in the United States, political decision makers are proclaiming to their constituents that the worst of the economic crisis is behind us, “green shoots,” in the words of Fed Chairman Ben Bernanke, are starting to emerge, and the stock market has regained much of its losses. Yet, as Wall Street awards record bonuses to many of its stakeholders, unemployment in the U.S. and other developed countries continues to rise, while the credit crunch constricts small and medium size businesses. Amid the contradictory images regarding the Great Recession, I have written “Global Economic Forecast 2010-2015:Recession Into Depression,” http://www.createspace.com/3403422 , in which I look at the likely economic trends over the next 5 years. As the title suggests, my projection is not an optimistic one.

While the trillions of dollars poured into the global financial system by the United States and other sovereigns did prevent a total financial collapse in late 2008, this achievement has not come without a high cost, and growing danger.  The level of public debt being accumulated by governments across the globe in response to the global economic crisis, and especially in the U.S., will reach a point of unsustainability, likely by 2012. This will occur simultaneously with continuing high rates of unemployment, which equates with weak consumer demand. The United States is dependent on the American consumer for at least 70% of GDP output. Overleveraged and underemployed consumers dampen growth prospects and  retard government tax revenues. While public finances remain weak, policymakers will likely maintain stimulus spending programs, which translates into structural mega-deficits. The Congressional Budget Office is currently projecting a $9 trillion deficit over the next decade; based on the CBO’s past record, this is likely a lowball estimate.

In my look at the probable economic trajectory for the U.S. and other major economies over the next five years, I had to confront the strong possibility that amid America’s growing fiscal imbalance, there exists a serious danger of future shocks to the global financial system, which may possibly rival the implosion of the investment banks which occurred in 2008. During the next two years, $2 trillion in commercial real estate loans will come due. These were loans initiated when commercial properties were at their peak valuation, and largely securitized, as was the case with subprime loans that triggered the financial crisis in 2008. Should a commercial real estate implosion replicate the carnage that the banking system experienced in 2008, how will sovereign governments, the United States in particular, find the money to finance another financial system bailout? My conclusion is that it will not be mathematically possible for the U.S. and other governments to sustain a future rescue of the banking system. In essence, sovereign  governments will become overwhelmed with public debt, reaching a point of fiscal collapse. The result will be sovereign insolvency, leading to a synchronized global depression.

In his farewell address to the nation in January 1961, President Dwight D. Eisenhower warned his countrymen about the long-term consequences of soaring public debt. Mortgaging the assets of future generations, Eisenhower believed, could transform today’s democracy into tomorrow’s “insolvent phantom.” In the midst of our current economic crisis, it would be wise to pay heed to the sage advice that President Eisenhower offered nearly half a century ago.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com   

Larry Summers in Winter

July 19th, 2009 Comments off

The speculation after the November presidential election was that Barack Obama originally wanted  Bill Clinton’s former Treasury Secretary, Larry Summers, to serve in the same capacity in his administration. When criticism arose within his own party due to Summers’ strong ties to Wall Street, Obama selected  Timothy Geithner as Treasury Secretary and appointed  Larry Summers to serve as Director of the National Economic Council. In essence, Summers is serving as the principal economic advisor to President Barack Obama. In that role, Summers was undoubtedly one of the principal architects of the Obama administration’s so-called Economic Recovery Act, the $787 billion deficit-driven stimulus package that was supposed to put the brakes on the free fall in employment numbers in the United States.

Increasingly, many critics, not all of them Republican, have raised serious doubts as to the efficacy of the Obama stimulus plan. However, the Obama team is not about  passivity and turning the other cheek in the  face of public doubts. They are pushing back, and taking the lead in connection with the stimulus plan has been Larry Summers.

Appearing before the Peterson Institute for International Economics, Larry Summers wanted to make the case that the Recovery Act was, in fact, working. One would expect a man with as brilliant an intellect as Mr. Summers is alleged to possess to offer convincing analysis based on solid macroeconomic data. However, if that was your expectation, you are out of luck. This is what President Obama’s lead economic advisor had to offer as irrefutable “proof” that the administration’s Recovery Act was functioning according to plan: the number of people conducting Google searches for the term “economic depression,” which had increased last fall in the wake of the demise of Lehman Brothers, was now “back to normal.”

Is Larry Summers serious? This is the strategic data point that the key actor within Obama’s team of economic advisors is fixated on? Google searches are now the leading indicator and most persuasive metric of what’s happening to the real economy? Well, Mr. Summers, last fall, when you noticed  a spike in Google searches related to an economic depression, I established a new website on the crisis, GlobalEconomicCrisis. Com.  During the first few weeks that the website existed, there was hardly any traffic. Now, months afterwards, the site receives hundreds of thousands of hits per month.  Is that indicative of economic trends? Of course not. But neither is Larry Summers’ “observation.”

A far more relevant indicator of what is occurring with the real economy is the unemployment rate. Contrary to the declarations of the Obama administration that passage of the Recovery Act would stem the tide of job layoffs and stabilize the official unemployment rate at 8%, this sobering statistic has now increased to 9.5%, excluding the long-term unemployed and underemployed unable to find full-time jobs. All indications are that this number will exceed double-digits by the end of the year.

The attempt by Larry Summers to utilize nonsensical data in defence of the core economic policy of the Obama administration in addressing the most severe economic contraction in American history since the Great Depression not only fails to reassure an increasingly uncertain public; it increases scepticism regarding the suitability of Larry Summers to serve as the White House point-person on the economy. Those who had pre-existing doubts regarding Summers due to his role in dismantling the  Glass- Steagall Act ( which eliminated the  longstanding separation between investment and retail banks, leading to the subprime implosion that sparked the current economic crisis) will see them reinforced by the bizarre rationalizations he is now  increasingly resorting to in defence of the Obama administration’s economic policies.

Perhaps we should not be surprised by the convoluted logic Summers invokes in support of  his view of reality. After all, a major factor in his fall from the presidency of Harvard University was his “explanation” for why females were grossly under-represented in tenured academic positions in the sciences and engineering: “the different availability of aptitude at the high end,” according to Summers.

Starting with Alan Greenspan as long-serving Fed chairman, and continuing with the likes of Rubin, Paulson, Bernanke, Geithner and now Summers, the public has been subjected to propaganda from the political establishment that presents those who have been selected to design our economic architecture as being brilliant beyond all measure. If we have learned anything over the past year, it is that these supposed geniuses of macroeconomic policy are in fact highly fallible. If nothing else, Larry Summers’ perplexing descent into meaningless trivialities suggests that this key economic policymaker is as detached from reality as most of his recent predecessors. Rather than being reassured by his reference to Google searches that bright rays of sunshine are about to dissipate the dark economic clouds hovering over the nation, I see Larry Summers’ ascendancy  in the economic policymaking hierarchy of the Obama administration as the harbinger of a long recessionary winter which still lies ahead.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com