Greenspan: Worst Financial Crisis Ever, Including Great Depression
February 26, 2010
Washington’s Blog
Greenspan just said that the current credit crunch is “by far the greatest financial crisis, globally, ever” — including the 1930s Great Depression.
Bloomberg notes:
Greenspan said that while the economy was in worse shape in the Great Depression, the recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.”
Greenspan also said “fiscal affairs are threatening this outlook” for recovery.
As I pointed out last May:
The following experts have said that the economic crisis could be worse than the Great Depression:
•Fed Chairman Ben Bernanke
•Economics professors Barry Eichengreen and and Kevin H. O’Rourke (updated here)
•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
Unfortunately, virtually everything the American government has done since the crisis started has been counterproductive. See this, this, this, this, this, this, this, this, this, this and this.
The same is true of most other governments.
In the understatement of the day, Greenspan also called the recovery “extremely unbalanced,” driven largely by high earners benefiting from recovering stock markets and large corporations.
Click here for the full report
Ron Paul: The Government Is Too Big to Succeed
January 20, 2010 by joel
Filed under Government
January 20, 2010
Campaign for Liberty
By Ron Paul
Last week, the Financial Crisis Inquiry Commission kicked off their first round of hearings on the
causes of the economic meltdown on Wall Street. The commission is being compared to the the
Pecora Commission launched in 1932 to investigate the causes of the Great Depression. The
Pecora commission is beloved by those who believe the solution to every problem is more laws
because it was used to justify a number of new laws, including Glass-Steagall. Of course, none of
those laws addressed the real causes of the Great Depression. It was the introduction of unsound
monetary policy and central economic planning pursued by the Federal Reserve that really threw
everything off balance. The Fed was founded in 1913 to stabilize the economy and prevent a
recurrence of the short-lived Panic of 1907, but instead it promptly produced the Great Depression
which lasted more than 15 years.
The Pecora Commission was stacked with big government sympathizers who blamed the free
market and the gold standard without question, and without any consideration of government
interference in the economy. This panel is no different. Never will they contemplate how
government steered us into this crisis, and what perverse incentives can be removed or repealed so
that the market will function more smoothly. Never will they discuss how investment should come
from savings, not debt. Never will it occur to them that fiat money, artificially low interest rates and
the whole Federal Reserve System might be unwise and unstable, not to mention unconstitutional.
The answer will always be more government regulation and oversight. It is predictable that this
government panel will eventually come to the firm conclusion that government needs to be bigger,
and that the market is just too free.
Dollar Crisis Looms If U.S. Doesn’t Curb Debt
January 18, 2010
CNBC.com
By Reuters
The United States must soon raise taxes or cut government spending to curb its debt, and failure to act will risk a crippling dollar crisis as investor confidence ebbs, a panel of experts said on Wednesday.
“It has got to be done. It will be done some day. It may be done with enormous pain. Or it may be done more rationally,” said Rudolph Penner, a former head of the nonpartisan Congressional Budget office who co-chaired the 24-strong Committee on the Fiscal Future of the United States.
President Barack Obama’s administration will present his budget for fiscal 2011 early next month amid intense pressure to live up to election campaign promises not to raise taxes on middle class Americans, while confronting a record deficit.
As a result, Obama is expected to focus on long-term fiscal discipline, while maintaining policy support for an economic recovery in the near-term as the country rebuilds after its worst recession since the Great Depression.
The two-year study by the panel, assembled by the highly respected National Research Council and the National Academy of Public Administration, said that the White House had some time on its side to restore growth, but must then act.
“In the next year or two, large deficits and more borrowing are unavoidable given the severity of the economic downturn. However, action ought to begin soon thereafter,” they said.
The national debt has risen above 50 percent of GDP (gross domestic product) from 40 percent two years ago, and within 20 years will blow past a previous record above 100 percent of GDP set after World War Two without stern official steps.
Mounting debt could sap investor confidence in the economy, and the nation’s ability to honor its obligations, pushing up interest rates and causing a steep fall in the value of the dollar as international creditors seek safer returns elsewhere.
Cut Health Care
The committee identified curbing Medicare, Medicaid and Social Security spending as the top challenge, and had a lukewarm assessment of cost containment in health care reform currently before Congress that Obama hopes to sign soon.
Committee co-chair John Palmer said the reforms might lay the foundation for improvements in the future, but he was skeptical about presumed saving levels and said that “passage would not change in any substantial way our analysis.”
The committee, which included three former heads of the CBO, outlined a range of options to lower the ratio of the national debt to 60 percent of the size of the economy.
The 60 percent threshold of debt to GDP, a target that is also used by the nations sharing the euro common currency, was a “judgment choice”, said Penner, who is a senior fellow at the Urban Institute, a Washington think-tank.
He said it was deemed to be the most that could be borne without incurring debt levels that would drive up long-term interest rates, and the least that was politically feasible in terms of reductions in government spending.
At one end of the options, the committee reviewed a policy mix based on low spending and low taxes. This envisaged payroll and income tax rates staying as they are, around 18-19 percent of GDP, but healthcare and retirement program costs sharply curtailed and defense and domestic spending cut 20 percent.
The other end of the scale looked at a high spending/high taxes policy mix that would maintain the projected growth in Social Security and allow higher spending on federal programs.
However, this would see taxes rise above 40 percent of GDP, or in the neighborhood of Denmark or Sweden, in order to hold the national debt to 60 percent, unless a value added sales tax was also introduced to augment government revenue.
Between the two were several intermediary solutions relying on a blend of higher taxes and lower spending. The committee made no recommendations but warned there was no time to waste.
“If action is taken soon, the country has a wide choice of options to help achieve fiscal sustainability. All are difficult; but if action is postponed, the options will be fewer and the choices even more difficult,” they said.
Click here for the full report.
America Slides Deeper into Depression
January 11, 2010
Telegraph.co.uk
By Ambrose Evans-Pritchard
The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters.
Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.
The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens.
Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody’s Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck’s Grapes of Wrath.
Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor “harsh, repugnant, shocking and repulsive”. We are not far from a de facto moratorium in some areas.
This is how it ended between 1932 and 1934, when half the US states declared moratoria or “Farm Holidays”. Such flexibility innoculated America’s democracy against the appeal of Red Unions and Coughlin Fascists. The home siezures are occurring despite frantic efforts by the Obama administration to delay the process.
This policy is entirely justified given the scale of the social crisis. But it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of “option ARM” contracts due to reset violently upwards this year and next.
US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. “If the 2008 and 2009 loans go bad, then we’re back where we were before – in a nightmare.”
David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus). This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.
Fed hawks are playing with fire by talking up about exit strategies, not for the first time. This is what they did in June 2008. We know what happened three months later. For the record, manufacturing capacity use at 67.2pc, and “auto-buying intentions” are the lowest ever.
The Fed’s own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc.
Professor Tim Congdon from International Monetary Research said the Fed is baking deflation into the pie later this year, and perhaps a double-dip recession. Europe is even worse.
This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73.
How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.
Mr Rosenberg is asked by clients why Wall Street does not seem to agree with his grim analysis.
His answer is that this is the same Mr Market that bought stocks in October 1987 when they were 25pc overvalued on Shiller “10-year normalized earnings basis” – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, Bear Stearns funds had imploded, and credit had its August heart attack. The stock market has become a lagging indicator. Tear up the textbooks.
Click here to read the full report.
Jobs to Come This Spring
December 15, 2009 by JP
Filed under Government
December 15, 2009
Inforwars.com
By Kurt Nimmo
On ABC’s This Week over the weekend, bankster minion Larry Summers told his former coworker George Stephanopoulos there will be jobs come spring. Stephanopoulos pressed Summers on how much will be added to the federal debt in order to create jobs but the former economist for the globalist loan sharking operation at the World Bank did not provide an answer. He merely said Obama will “work with Congress” on a job creation proposal.
“I believe that, as do most professional forecasters, that by spring, employment growth will start to be turning positive,” said Summers.
Government does not create jobs. It is a wealth and job destruction machine. Obama’s job creation boondoggle is a political maneuver designed to placate the masses increasingly worried about high unemployment now over 20% and closing in on Great Depression levels.
Stephanopoulos threw around the figure of $100 billion dollars. This will be money borrowed from the bankers and added to the national debt. It may create a few temporary government jobs and make Obama look good — something he desperately needs now that his approval rating is around 45% — but ultimately it will impoverish a new generation of tax payers.
Only economic growth in the private sector can create employment opportunities.
“When government uses transferred wealth to hire people, it is essentially transferring jobs from the private sector, not adding to the net number of jobs in the economy,” Thomas Sowell writes today. “Destroying some jobs while creating other jobs does not get you very far, except politically. But politically is what matters to politicians, even if their policies needlessly prolong a recession or depression.”
featured stories Former World Bank Economist Promises Jobs Come Spring
Obama’s 2.5 million Jobs Program is a government jobs scheme. It is also a way for Congress critters to save their skins. A facade of recovery and jobs needs to be erected before the election coming up.
Instead of private sector jobs, employment will continue to be shipped to China, India, and other slave labor gulags ruled by totalitarian thugs.
“Facing the prospect of joining the army of the unemployed if unemployment stays high, politicians, or at least the liberal Democrats among them, want to develop direct job creation schemes of the sort that Franklin Roosevelt introduced during the Great Depression. Economists know that another deficit-increasing spending package is no long-run answer to sustainable recovery,” writes Irwin Stelzer.
Click here for the full report
2010 Deficit Higher than 2009 in First 2 Months of Year
December 9, 2009
Reuters
By Andy Sullivan
In October and November, the government spent $292 billion more than it took in, the nonpartisan Congressional Budget Office said.
That was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.
The federal budget has been battered by the worst economic downturn since the Great Depression of the 1930s, as tax revenues have plunged and spending on safety-net programs like unemployment insurance have skyrocketed.
The budget deficit was $176.4 billion in October, according to Treasury Department records, and the CBO estimated the deficit for November will have come in at $115 billion.
The CBO gave its figures in billions of dollars and said numbers may not add up to the totals because of rounding.
Receipts totaled $132 billion in November, the CBO estimated, down 9 percent from the same month last year. That was partly due to new legislation that gives increased tax write-offs to corporations.
United States Already $292 Billion in Red This Year
December 9, 2009
Reuters
By Andy Sullivan
In October and November, the government spent $292 billion more than it took in, the nonpartisan Congressional Budget Office said.
That was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.
The federal budget has been battered by the worst economic downturn since the Great Depression of the 1930s, as tax revenues have plunged and spending on safety-net programs like unemployment insurance have skyrocketed.
The budget deficit was $176.4 billion in October, according to Treasury Department records, and the CBO estimated the deficit for November will have come in at $115 billion.
The CBO gave its figures in billions of dollars and said numbers may not add up to the totals because of rounding.
Receipts totaled $132 billion in November, the CBO estimated, down 9 percent from the same month last year. That was partly due to new legislation that gives increased tax write-offs to corporations.
What Must Be Done About the Economic Crisis
December 1, 2009 by Andrew
Filed under Government
December 1, 2009
By Richard C. Cook
The United States does not control its own destiny. Rather it is controlled by an international financial elite, of which the American branch works out of big New York banks like J.P. Morgan Chase, Wall Street investment firms such as Goldman Sachs, and the Federal Reserve System. They in turn control the White House, Congress, the military, the mass media, the intelligence agencies, both political parties, the universities, etc. No one can rise to the top in any of these institutions without the elite’s stamp of approval.
This elite has been around since the nation began, becoming increasingly dominant as the 19th century progressed. A key date was passage of the National Banking Act of 1863, when the system was put into place whereby federal government debt was used to collateralize bank lending. Since then we’ve paid the freight through our taxes for bank control of the economy. The final nails in the coffin came with the passage of the Federal Reserve Act of 1913.
In 1929 the bankers plunged the nation into the Great Depression by constricting the money supply. With Franklin D. Roosevelt as president, the nation struggled through the decade of the 1930s but did not pull out of the Depression until the industrial explosion during World War II.
After the war came the Golden Age of the U.S. economy, when the working man, protected by strong labor unions, became a true partner in the prosperity of the industrial age. That era lasted a full generation. The bankers were largely spectators as Americans led the world in exports, standard of living, science and space exploration, and every measure of health, longevity, and culture.
Roosevelt had kept the bankers subservient to the interests of the economy at large. The Federal Reserve was part of the New Deal team, and interest rates were held at historic lows despite a large federal deficit. One main impact was the huge increase in home ownership. After World War II, the G.I. Bill allowed home ownership to grow further and millions of veterans to attend college. The influx of educated graduates led to productivity growth and the emergence of new high-tech industries.
But the bankers were laying their plans. In the early 1950s they got the government to agree to allow the Federal Reserve to escape its subservience to the U.S. Treasury Department and set interest rates on its own. Rates rose throughout the 1950s and 1960s. By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.
In 1971, President Richard Nixon removed the dollar’s gold peg, allowing the huge inflation resulting from oil price increases that the international bankers engineered through control of U.S. foreign policy when Henry Kissinger was national security adviser and secretary of state. Nixon’s opening to China resulted in early agreements, also overseen by banking interests, to begin to transfer U.S. industry to overseas producers like China which had cheap labor costs.
By the mid-1970s, the U.S. had been taken over by a behind the scenes coup-d’etat that included events in 1963 when President John F. Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control. In the election of 1976, David Rockefeller succeeded in placing fellow Trilateral Commission member Jimmy Carter in the White House, but Carter upset the banking community, thoroughly Zionist in orientation, by working toward peace in the Middle East and elsewhere.
I was working in the Carter White House in 1979-80. Unbeknownst to the president, Federal Reserve Chairman Paul Volcker, another Rockefeller protégé, suddenly raised interest rates to fight the inflation the bankers had caused by the OPEC oil price deals, and plunged the nation into recession. Carter was made to look weak and uninformed and was defeated in the election of 1980 by Republican candidate Ronald Reagan. It was through the “Reagan Revolution” that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.
Click here for the full report
Bernanke Says Limiting Fed Independence Will Seriously Impair Economy
November 30, 2009
Bloomberg.com
By Craig Torres
Federal Reserve Chairman Ben S. Bernanke said curbing the central bank’s authority to supervise the banking system and tampering with its independence would “seriously impair” economic stability in the U.S.
“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” the Fed chairman said in a commentary in today’s Washington Post. The measures “would seriously impair the prospects for economic and financial stability in the U.S.”
Bernanke has presided over the most expansive use of Fed powers since the Great Depression. While the 55-year-old Fed chairman has said he averted a financial meltdown, lawmakers have voiced concern about taxpayer-sponsored bailouts and proposed the most sweeping dismantling of Fed authority since the creation of the institution in 1913.
Bernanke’s commentary is his first comprehensive answer to proposals in the House and Senate that would limit the Fed’s supervisory powers and exert more political oversight in the setting of interest rates. The issues are likely to be discussed when he faces the Senate Banking Committee on Dec. 3 for a hearing on his nomination to a second term as chairman.
“In the current environment with so much borrowing by the government, the political pressure on the Fed is out there,” said James Glassman, senior economist at JPMorgan Chase & Co. “I don’t think you can totally dismiss it.”
Lax Supervision
Senate Banking Committee Christopher Dodd, a Democrat from Connecticut, has criticized the central bank for lax supervision and introduced legislation this month that would strip bank oversight from the Fed and create a single bank regulator. Dodd would also limit the central bank’s ability to loan to individual companies.
“There is a strong case for a continued role for the Federal Reserve in bank supervision,” Bernanke said. “Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks.”
The Fed chairman pointed to capital adequacy tests the Fed performed in May which helped restore confidence in the banking system. The Standard and Poor’s 500 Financials Index has increased 34 percent since May 1, outperforming the S&P 500 by about 10 percentage points.
Market Recovery
“The Fed has done a very remarkable job managing the financial crisis and the recovery of the financial markets is a testimony to that,” Glassman said. “Of all the things to ‘fix,’ why would we tamper with the one that actually has worked well?”
Dodd and Representative Barney Frank, chairman of the House Financial Services Committee, want to take away the Fed’s rule- writing power on consumer financial products and give it to a new Consumer Financial Protection Agency.
“The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis,” Bernanke said. The Fed has reviewed its performance and “moved aggressively to fix the problems,” he added.
As the subprime mortgage crisis began to trigger losses in bank portfolios, Bernanke used emergency authority last year to purchase securities from Bear Stearns Cos. and facilitate its merger with JPMorgan Chase & Co.
Necessary Actions
The Fed chairman said that the government’s actions, while in some instances “distasteful and unfair,” were necessary to prevent “a global economic catastrophe that could have rivaled the Great Depression in length and severity.”
Bernanke pushed the Fed’s backstop lending beyond banks, setting up programs to support the commercial paper and asset- backed securities markets. The Fed Board approved the bank- holding-company applications of Goldman Sachs Group Inc. and Morgan Stanley, giving them access to the Fed’s loan window.
The former Princeton University economist and Great Depression scholar has more than doubled the Fed’s assets to $2.21 trillion and become the lender of last resort to government bond dealers, banks, Wall Street firms and U.S. corporations. The central bank has also propped up markets for mortgage-backed and asset-backed securities that support credit to consumers, small businesses and commercial real estate.
Support for Attack
“Congress has a lot of public support for an attack on the Fed,” Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh, said in an interview Nov. 23. “They bailed out everybody in sight.”
A financial regulatory reform bill proposed by Frank, a Democrat from Massachusetts, would limit Fed emergency lending to broadly available credit programs.
The Frank bill preserves the Obama administration’s proposal to make the Fed the lead regulator of risk across the financial system.
The central bank’s independence is also under fire from both chambers of Congress. Frank’s committee advanced a proposal this month to remove a three-decade ban on congressional audits of Fed interest-rate decisions. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.
Less Independent
Bernanke said studies show that central banks independent of political influence tend to keep inflation and interest rates lower than their less independent counterparts.
“The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation,” Bernanke said.
Under the proposal by Dodd, commercial banks would lose their power to appoint directors of the 12 regional Fed banks. Instead, directors would be chosen by the Fed’s Senate-confirmed governors, and each board chairman would be appointed by the president of the United States and subject to Senate approval.
The proposal would increase political oversight of the Fed bank presidents, who are among the most vocal proponents on the Federal Open Market Committee for keeping inflation low.
“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation,” Bernanke said.
Policy makers cut the benchmark lending rate to a range of zero to 0.25 percent almost a year ago and this month reiterated a pledge to keep the policy rate low for “an extended period.”
While the economy expanded at a 2.8 percent annual pace in the third quarter, unemployment jumped to 10.2 percent in October. The Fed’s challenge is to support growth without unleashing expectations of higher inflation prompted by aggressive monetary stimulus.
“The ultimate goal of all our efforts is to restore and sustain economic prosperity,” Bernanke said. “Our ability to take such actions without engendering sharp increases in inflation depends heavily on our credibility and independence from short-term political pressures.”
Click here for the full report.
Unemployment Rate Hits Double Digits for First Time Since 1983
November 06, 2009
Yahoo Finance
By Christopher S. Rugaber
The unemployment rate has hit double digits for the first time since 1983 — and is likely to go higher.
The 10.2 percent jobless rate for October shows how weak the economy remains even though it is growing. Rising unemployment also could threaten the recovery if it saps consumers’ confidence and makes them more cautious about spending as the holiday season approaches.
Nearly 16 million people can’t find jobs even though the worst recession since the Great Depression has apparently ended.
The unemployed rate jumped to 10.2 percent, the highest since April 1983, from 9.8 percent in September, the Labor Department said Friday. The economy shed a net total of 190,000 jobs, more than economists had expected.
The number of unemployed hit 15.7 million, up from 15.1 million. The job losses occurred across most industries, from manufacturing and construction to retail and financial. The job-loss total is based on a survey of businesses, separate from a survey of households that produces the unemployment rate.
Economists say the unemployment rate could reach 10.5 percent next year because employers remain reluctant to hire.
President Barack Obama called the new jobs report another illustration of why much more work is needed to spur business creation and consumer spending. Noting legislation he’s signing to provide additional unemployment benefits for laid-off workers, Obama said, “I will not rest until all Americans who want work can find work.”
Still, counting those who have settled for part-time jobs or stopped looking for work, the unemployment rate would be 17.5 percent, the highest on records dating from 1994.
