Sunday, October 18, 2009
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 nightly news, you might not know what other experts have been saying.
As I wrote in February:
As I wrote in June:
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.
- 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."
Am I saying that there is definitely another Depression ahead?
The following experts have said that the economic crisis could be worse than the Great Depression:
- Fed Chairman Ben Bernanke
- 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
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 manufacturingAs Stephen Roach - Chairman of Morgan Stanley Asia and former chief Morgan Stanley economist for the U.S. - said a couple of days ago:
(6) Creating an enormous debt overhang and trashing our currency
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.”