Well I really tried to keep the start of Great Depression II out of Four at Four, but…
George Soros writing in the Financial Times states this is The worst market crisis in 60 years.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility…
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
Worse could be depression or war… nuclear war.
The New York Times – Worries That the Good Times Were Mostly a Mirage.
The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.
The great moderation now seems to have depended – in part – on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.
So if the past 16 years were a mirage, then Clintonomics were a lie too… Right Hillary?
And what will our glorious, clueless leaders in Washington do? Well the Washington Post reports Bush and lawmakers are close to deal on stimulus package. “Officials said they were close to the framework of a roughly $145 billion plan. About two-thirds of the money would go for tax breaks for individuals, plus extended unemployment and food stamp benefits, while the other third would be for business tax breaks. Individuals would get rebates of as much as $800, and married couples as much as $1,600… After a year of antagonism over issues including the Iraq war and children’s health care, the collaboration between Bush and the two Democratic leaders was intended to signal to a nervous country that Washington can put aside partisan bickering to bolster the economy.”
We need investment in America, not more damned tax cuts. In my opinion, this is close to the worst possible thing they could do.
Finally for a change of pace, an interesting story about an ancient skull is below the fold…