| Monday, March 24, 2008 |
| Recession is a given. Can we avoid depression? |
Yikes, this Christian Science Monitor article has articulated my worst economic fears: Recession is a given. Can we avoid depression? Mr. Parks, however, doubts the cuts will do much to boost the economy. Rather, he sees a further steep fall in housing prices, continued major deficits in the federal budget and in the international trade balance, a tumbling dollar, and a weak stock market leading to a genuine depression with 30 to 35 percent unemployment, greater poverty, more loss of homes, plunging bond and stock prices, even some starvation. Parks, now a Pace University finance professor (for years he was chief economist at three Wall Street firms), says he has never predicted a depression before. His e-mail to press acquaintances sparked a lot of interest, as Parks was daring to express publicly the financial community's worst nightmare.
What prompted Parks's pessimism is his assumption that the "right-wing ideology" prevalent in the White House will keep Washington from acting to ward off a major depression. A fan of famed British economist John Maynard Keynes, who called for major government spending programs to remedy the Great Depression of the 1930s, Parks would like the federal government to step up outlays to fix rickety bridges, repair pot-holed roads, improve schools, and more to provide more jobs, more income, and thus more spending to cure any economic downturn.
As Parks sees it, Washington and Wall Street are mostly counting on Fed additions to the money supply to revive the free market and right the economy.
"Automatic recovery is in no way a reliable concept," he warns, especially if deflation (falling prices) has begun. He recalls warning of the economic damage that the bursting real estate and stock market bubbles would wreak in Japan: That nation suffered stagnation from 1990 to 2001. Today's financial crisis has revived the debate over the role of government in stopping a slump. |
| posted by Boston Gal @ 9:49 AM *
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| 9 Comments: |
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"Recession is a given. Can we avoid depression?"
mental or fiscal, or both? my response is: because the latter is out of our control, why get the former?
- s.b.
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From the article: "Parks would like the federal government to step up outlays to fix rickety bridges, repair pot-holed roads, improve schools, and more to provide more jobs, more income, and thus more spending to cure any economic downturn."
He's using fear to push his own agenda... and doing a darn good job, as the press will fall all over whoever can make the next "Great Depression" argument even remotely convincing.
It's really quite sad. I have been predicting that housing prices were due for a fall since 2003. And the current financial crisis certainly won't wrap up soon, or be easy for most of Wall Street. But 35% unemployment? People starving? I think we as humans will band together to stop that. Hurricane Katrina brought out the best in a lot of people...I don't think that spirit will go away anytime soon. And overall, though we as a country are more cautious about spending, we're still spending. I don't buy his arguments.
Also, I take issue with his claim of deflation. Right now inflation is running rampant. It'd be hard to reverse that all the way back down to negative numbers.
It's not worth listening to these sorts of "doomsday" scenarios. The next 5-7 years won't be easy, but we will recover, and in the meantime we will see some extraordinary business opportunities.
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The end is nigh! Everything will fall apart! Chaos! Anarchy!
Do the media report the news or MAKE the news?
Please keep the fear rollercoaster in free fall - with a 30 year horizon I'm buying!
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Ah, all that public spending from 1929 to 1940 didn't pull the country out of the Depression. Why does he think it would help now?
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We might have a depression....
we might not. Mr. Parks doesn't
know, and neither do I, but I'd say
it's unlikely. Sounds like Mr.
Parks is pushing his own agenda,
as Ms. Douglass pointed out
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This guy is reaching. This could get worse, but 30% unemployment? I completely agree that housing will correct more in the high priced areas and that housing will not really recover for another 4-6 years (housing downturns last longer than stock market downturns).
He is right that there will be people starving, but that probably won't be in the developed countries. The prices of rice and wheat are starting to hurt the world's extreme poor in the 3rd world countries.
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This article is nothing but left-wing propaganda. I think Erica, one the previous commenters, points out most of the flaws in this article. We are far from deflation. The balance of trade is actually improving as foreigners continue to invest heavily in the US. Even unemployment is low by historical standards.
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The prediction of Professor Parks is so over-the-top that I decided I had to look this guy up. Professor Parks is more than 80 years old; he actually remembers the Great Depression. I think we have to conclude that the man has gone a bit ga-ga.
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There is a single statement in this article that caught my eye:
"Many hedge funds and investment banks have borrowed as much as 40 times their own capital to invest, seeking a high return."
If true, that should cause worry. That is the equivalent of using $1000 as colateral for $40,000 in loans: not smart.
If true, the managers that engaged in such leverage should lose their jobs, thier fortunes, and all respect from the financial community. I won't bet on it though.
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"Recession is a given. Can we avoid depression?"
mental or fiscal, or both? my response is: because the latter is out of our control, why get the former?
- s.b.