Former Fed chairman Paul Volcker says we're in virtually unprecedented trouble:
"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London."Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."
His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way.
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Chris,
The market no longer matters.
Yeah, the market is going to have at least one huge bear market rally but this probably won't lead to any improvement in the life of average folks. One of the biggest rallies of all time happened between 1932 and 1937. It was all given back and the Depression still got worse.
This will be five years, with double-digit inflation starting in about three.
If we have any inflation at all in the next five years I'll eat my shorts ... dipped in Blair's Original Death Sauce.
The Bank of Japan had a zero interest rate policy for years and the Japanese Government has such a large deficit from fiscal stimulus measures that 60% of tax revenues now go to servicing this debt! Didn't matter. Still had modest deflation. And the global economy was expanding during this time!
Things that would normally be allowable can no longer be allowed, each failure/layoff is a step closer to the abyss.
The contraction will feed on itself, if that's what he means.
No-one has a metric for what this means.
We're in uncharted waters, for sure. I still think an L-shaped recession/depression is the most likely scenario. Three years of contraction, followed by at least twice as many years of an I've-fallen-but-I-can't-get-up malaise.
Little, if any, of the PPI decline will be passed on to CPI.
Huh? For the past couple of years, companies haven't been able to pass on rising costs because of intense competition. Now with their market shrinking they're going to let their customers absorb it? I think not.
Interesting that Karth compared our current economic crisis with a a "silly" radio ad about the environment, when in fact we are as overdrawn on the Bank of Natural Capital as we are on Wall Street.
The good news is that we are now in a position to act on these dual crises, and prepare the nation for what our pre-eminent biologist, E.O. Wilson, calls "the bottleneck" the world faces in the next few decades.
This could be the beginning of a start on a much more hopeful future, if we have the will and the smarts to make it happen.
Pyrrho @ 7:56 PM writes:
"I still think an L-shaped recession/depression is the most likely scenario. Three years of contraction, followed by at least twice as many years of an I've-fallen-but-I-can't-get-up malaise."
Even with the expansion of central-government spending for Medicare/Medicaid/prescription drugs ? We're going to have to either borrow like maniacs for that (which will make the well run dry sooner than the 9 years you forecast) or cut that spending, which I think is politically impossible. Boomer and Silent agitation will prevent that.
Prediction: three years of contraction, followed by a possible acceleration into outright depression by 2015. I will NOT bet against a possible central-government collapse, or civil unrest, during that time.
Your servant,
Lord Karth
Re: Prediction: three years of contraction, followed by a possible acceleration into outright depression by 2015.____I'll make the opposite prediction. We'll see three years of low or negative growth, with next year being the worst of the bunch. Then a rather tepid recovery. The employment stats won't reurn to 2006 levels until 2012 (maybe not 2013)
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