The Great Depression II?

16 12 2009

By Timothy D. Naegele[1]

It is being asserted these days that “[h]ome-building is so far down it has nowhere to go but up,” which is patently absurd.  Such nonsense was preached after 1929 too, and those who believed it probably bid on a bridge in Brooklyn as well.  The U.S. economy as well as economies around the world have been going through wrenching experiences already, but much more is likely.  Home prices have fallen substantially, though there will be relatively brief respites from the downward trend, such as we are witnessing now.

Anyone who thinks that the bottom is close to being reached, or that the so-called “Stimulus Package” devised by Team Obama and the Democrat-controlled Congress will solve the problems, has never taken a college course in economic history.  It took years for the housing bubble to reach its staggering proportions; and when it burst, an economic tsunami was released that has been rolling worldwide with devastating effects, stretching well into the next decade.  The Great Depression did not end until the onset of World War II; and the painful experiences that the U.S. and other global economies are witnessing today may take just as long.

The bailout legislation helped Wall Street, the banks, GM and Chrysler, home builders, and others, but there has been no relief for the American people, and they know it in spades.  There are lots of rude awakenings yet to come, both in the U.S. and abroad.  Barack Obama remains euphorically optimistic, but neither he nor the leaders of other countries can hold back an economic tsunami; and Americans are realizing more and more that he has lied to them.

Vernon L. Smith, Nobel Laureate in Economics, and Steven Gjerstad have written: “The events of the past 10 years have an eerie similarity to the period leading up to the Great Depression.”  Years from now, economic historians may look back at this era and conclude that global market forces ultimately determined the depth and duration of the economic meltdown, not the politicians in Washington or anywhere else.  The tsunami that was released when the housing bubble burst may not run its course until about 2017-2019, and its effects will be devastating worldwide.

While U.S. politicians and their counterparts in other countries have been trying to convince their electorates that they have the answers, they are simply holding out false hopes that real solutions are at hand; and Americans are in the process of realizing this as the elections of 2010 and 2012 approach.  America and other nations are in uncharted waters; and their politicians are facing backlashes from disillusioned and angry constituents that will be unprecedented in modern times.

The latest highly-respected Rasmussen Reports national telephone survey—which was released on December 14, 2009—found that just 40 percent of American voters favor the health care plan proposed by President Obama and congressional Democrats.  Fifty-six percent of Americans oppose it, which is the highest level of opposition found in six months of polling.  Perhaps more significantly, 46 percent of U.S. voters Strongly Oppose the plan, compared with 19 percent who Strongly Favor it.  Yet, Obama and the Democrats are in the process of trying to shove it down the throats of Americans.

Obama’s poll numbers have been falling like a rock.  The Rasmussen Reports daily Presidential Tracking Poll for December 15, 2009, shows that 26 percent of the nation’s voters Strongly Approve of the way he is performing his role as president.  However, 41 percent Strongly Disapprove, giving him a negative Presidential Approval Index rating of -15.  Tragically, the legacies of former Fed Chairman Alan Greenspan—who is to blame for the domestic and global economic meltdown[2]—Obama and the Democrat-controlled Congress will haunt the United States and the American people for generations to come, as the economic tsunami continues to roll worldwide.[3]

ObamaCare, which the American people strongly oppose, Obama’s war in Afghanistan and his failing economic policies, and his failure as a president may cost the Democrats both houses of Congress and change the course of American history.

© 2009, Timothy D. Naegele

[1] Mr. Naegele was counsel to the U.S. Senate Banking Committee; and chief of staff to Presidential Medal of Freedom recipient and former U.S. Senator Edward W. Brooke (R-Mass), the first black senator since Reconstruction after the U.S. Civil War.  He practices law in Washington, D.C. and Los Angeles with his firm, Timothy D. Naegele & Associates (  He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University.  He is a member of the District of Columbia and California bars.  He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal.  Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years.  See, e.g.,

[2] See, e.g.,

[3] See, e.g.,



78 responses

17 12 2009


This is an interesting article that touches on the issues that I addressed above, as well as what I wrote about in the American Banker and for the McClatchy Newspapers and McClatchy-Tribune News Service. See AND

11 01 2010


This article entitled, “America slides deeper into depression as Wall Street revels,” is worth reading.

23 01 2010

The following Wall Street Journal article is interesting, which reports that former Federal Reserve Chairman Paul Volcker is supposedly returning “center stage” in the Obama Administration.


Here is what I wrote at the Journal’s Web site:

Paul Volcker is a giant. Others close to President Obama are economic “pygmies.”

Volcker was the leading economic “guru” who endorsed Obama before he was elected, and the best of Obama’s economic advisers during the campaign. However, he seemed to have been sidelined and shunted aside by Team Obama.

He was on the Charlie Rose Show late last year, and he appeared discouraged. Reading between the lines, he seemed to have thrown in the towel, and I was sorry about that because I have always admired and respected him greatly. In fact, if he had been Fed Chairman instead of Greenspan, I do not believe the credit crisis and the economic meltdown would have happened, which have hurt so many people domestically and globally.

Now, it is interesting to see Volcker being brought back prominently. However, it may be too little, too late. Summers, Geithner, Rahm Emanuel and other political operatives are still at the center of the “storm.” For example, they have been fashioning Obama’s attack on the banks and Wall Street, which is pure demagoguery.

If Volcker had been front and center from Day One, he might have made a real difference. Now, the question is whether he is being used as nothing more than “window dressing.” Clearly, the reinstitution of Glass-Steagall-like rules is important, assuming it is possible to do that now when the lines separating banking from investment banking have been so blurred.

As much as I like Barney Frank and Chris Dodd personally, there are “damaged goods” politically; and their presence is not apt to instill confidence in the American people, especially as Obama sinks politically. See, e.g.,

25 01 2010

In December 2009, sales of previously-occupied American homes took the largest monthly drop in more than 40 years, plunging far deeper than expected.

See, e.g.,

10 02 2010

The Notion That We Are Only In A “Recession” Is Absurd

The Ritz-Carlton Hotel chain has announced that it will close its five-diamond property in Las Vegas this May.


Just like “global warming” is a farce, so is the notion that we are only in a “recession.”

Major hotel owners do not close multi-million-dollar properties in the midst of mere “recessions.” The economic tsunami that former Federal Reserve Chairman Alan Greenspan unleashed just keeps on rolling, as it will for the rest of this decade.

Giulio Tremonti, Italy’s Minister of Economy and Finance, was correct when he said: “Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.” That speaks volumes.

See; see also’s-legacy-more-suffering-to-come/

25 03 2010

One Of The Worst Housing Busts In History Continues

According to the Los Angeles Times, the seasonally-adjusted annual rate of 308,000 units in February was the lowest since the Commerce Department began keeping statistics in 1963, as the U.S. tries to recover from one of the worst housing busts in history.


30 03 2010

Property Taxes Remain High Despite Falling Prices

As expected, despite the decline in housing prices nationwide, property taxes are remaining high. This is because income tax and other tax revenues have fallen, which has dramatically impacted government revenues; and one way to offset the shortfall is to refuse to adjust property tax assessments downward, or at least to have lag times that keep revenues high. It was only a matter of time before taxpayers wised up to this scandal, and began to rebel.

An article in USA Today states:

From Florida beachfronts to Nevada deserts, fed-up homeowners are challenging property tax bills that have stayed high despite the housing crisis.

. . .

Angry homeowners . . . say their tax assessments and tax bills haven’t come down as fast as real estate prices in the worst housing collapse since the 1930s.

They’re right: Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion, according to the U.S. Bureau of Economic Analysis.

Property taxes have been a lifeline for flailing local governments, which collect more than 96% of property taxes.

. . .

What makes property taxes so different?

• Property taxes are often based on outdated market prices.

. . .

Some governments reassess property only every three or four years. Others wait even longer: “Utah once went 20 years without conducting meaningful reappraisals,” Federal Reserve economist Byron Lutz noted in a 2008 paper.

. . .

• Some local governments have raised property tax rates, offsetting falling home prices.

. . .

Others have imposed tax increases to deal with budget shortfalls.

. . .

[M]any local governments throw out distressed sales such as foreclosure auctions.

. . .

The tax appeals are putting strains on local governments already coping with a weak economy, dwindling overall tax revenue and budget cuts. Clark County, Nev., which includes Las Vegas, expects property tax appeals to reduce revenue by about $150 million in the next fiscal year, which starts July 1.


What the article does not discuss is how many Americans will lose their homes not only because they cannot afford their mortgages, but because they cannot afford their property taxes as well. In increasing numbers of cases, a property’s value is less than what the homeowner owes the bank (i.e., the property is “underwater”), and it makes sense for the homeowner to simply walk away from the property because he or she no longer has any equity in it—and is nothing more than a renter from the mortgage lender.

In turn, this will result in further declines in prices and more lost property tax revenues—as the downward housing spiral continues. Also, it may fuel a taxpayer revolt, similar to what happened in California with Proposition 13 in 1978.


1 04 2010

Vital Services Are Terminated

Whether it involves bus services that get people to and from their work, or parks or libraries, or many other services that so many people depend on to live and have any quality of life in America today, they are being terminated across the country, as the economic meltdown takes its toll—which will continue and get even worse, during the balance of this decade.

See, e.g.,,0,380807,full.story

12 04 2010

The Myth About FDR And The Great Depression

The Wall Street Journal has an important article, which states in pertinent part:

FDR did not get us out of the Great Depression—not during the 1930s, and only in a limited sense during World War II.

Let’s start with the New Deal. Its various alphabet-soup agencies—the WPA, AAA, NRA and even the TVA (Tennessee Valley Authority)—failed to create sustainable jobs. In May 1939, U.S. unemployment still exceeded 20%. European countries, according to a League of Nations survey, averaged only about 12% in 1938. The New Deal, by forcing taxes up and discouraging entrepreneurs from investing, probably did more harm than good.

What about World War II? We need to understand that the near-full employment during the conflict was temporary. Ten million to 12 million soldiers overseas and another 10 million to 15 million people making tanks, bullets and war materiel do not a lasting recovery make. The country essentially traded temporary jobs for a skyrocketing national debt. Many of those jobs had little or no value after the war.

No one knew this more than FDR himself. His key advisers were frantic at the possibility of the Great Depression’s return when the war ended and the soldiers came home. The president believed a New Deal revival was the answer . . . .

. . .

Congress—both chambers with Democratic majorities—responded by just saying “no.”

. . .

Instead, Congress reduced taxes.

. . .

By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. The U.S. began running budget surpluses.

Congress substituted the tonic of freedom for FDR’s New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.

The Great Depression was over, no thanks to FDR. Yet the myth of his New Deal lives on. With the current effort by President Obama to emulate some of FDR’s programs to get us out of the recent deep recession, this myth should be laid to rest.

See (emphasis added)

12 04 2010

Crime Goes Up, Law Enforcement Capabilities Go Down

One of the anticipated byproducts of the economic meltdown nationally and globally is that crime would go up, while the number of law enforcement would go down, creating even more of a crime-ridden society. In California, large numbers of inmates are going to be released from prisons and other detention facilities, which alone will create an increase in crime.

Also, in Los Angeles, homicide investigations are sitting idle already as detectives of its police department hit overtime caps. With its overtime budget decimated, the department is forcing officers to put cases on hold and take days or even weeks off. Despite an uptick in killings, the homicide unit is among the hardest hit. However, as the “Great Depression II” takes hold during the balance of this decade, things will get much worse.


20 04 2010

Very Troubling

A new Rasmussen Reports national telephone survey of Americans shows that 54 percent lack confidence in the stability of the U.S. banking system.

According to Rasmussen:

Before the financial industry meltdown began in the fall of 2008, 68% expressed confidence in the banking system.

In February 2009, confidence fell to a low of 39%. Earlier this year, 42% expressed such confidence.

Just 42 percent of Americans express confidence in the U.S. banking system today.


22 04 2010

As Predicted, The Economic Meltdown Is Shuttering Museums, Closing Parks And Curtailing Other Services

It has been reported:

The bankrupt Fresno Metropolitan Museum has agreed to return six Ansel Adams photographs to his son, who had objected to them being sold to pay off creditors.

See, e.g.,

It is expected that the situation will get far worse for museums, libraries, parks and other public facilities—which Americans have taken for granted—between now and the end of this decade.

See, e.g., and and’s-legacy-more-suffering-to-come/ and,0,4597841,full.story (Parks feeling the budget squeeze) and,0,680610.story (“Plunge in state revenue dashes hopes of an easy budget fix“)

5 05 2010

I think you’re right–we are either in a Depression or heading for one but I question whether Republicans taking the House and Senate in 2010 will change the course of history. It may stop this radical, extremist, agenda that has been foisted upon us over the last year and a half by this Cabal of left wing terrorists squatting in Washington DC but do the Republicans really have the gumption to take these deficits head on?

The Republicans expanded Medicare with their drug prescription plan. They retreated on Social Security reform. It’s going to take principled men and woman to do the right thing, and besides people like Paul Ryan, Eric Cantor, or Ron Paul (I’m not a libertarian but I respect the man) I think the rest of the party is more concerned with power than real results.

I stopped being a Republican in 2006 because I was so fed up with them. Now, like a cheating wife, they want me to forgive and forget? I’ll vote for them because the socialists in power are far more dangerous and destructive than I could have ever believed but I don’t know that The Republicans will be making history because that would require the party to grow a pair.

6 05 2010

Thanks, Ian, for your comments.

In many ways, I share your views. I began as a Democrat, then became a Republican, and have been an Independent for many years. The Republicans are “Neanderthals,” but by far the lesser of two “evils.”

If they have any guts, they will stop the radical agenda, but curtailing deficits much less slowing the economic tsunami are beyond the powers of mere mortals. The tsunami will run its course, with much worse yet to come, unfortunately.

Your last sentence echoes my sentiments exactly. 🙂

9 05 2010

The Crash Of All Crashes

Arnaud de Borchgrave is one of the “deans” of Washington reporting, and his article is sobering beyond belief, but not surprising.

Among other things, he writes:

China’s economy will slow and possibly “crash” within a year as the nation’s property bubble is set to burst.


Query who will buy American debt if that happens, and won’t a “domino effect” ensue?

Hold on tight. It will not be pretty!

13 05 2010

The UK: A Marriage Made In Hell?

Despite all of the temporary euphoria, the political match between the Conservatives and Liberal Democrats in the UK—and between David Cameron, the Tory leader, and Nick Clegg, his Lib Dem deputy—may prove to be a marriage of convenience that was fashioned in Hell. For openers, the philosophies of the Tories and Liberal Democrats are vastly different, not to mention the clash of egos that may know no bounds.

More fundamentally, the UK, Europe, America and the rest of the world are in the throes of what economic historians 20-40 years from now will describe as the “Great Depression II,” or by some similar name; and there is nothing that the Conservative-Liberal Democrat government can do to stop it. Like a tsunami in the oceans, Man is helpless to stem its destruction and massive human suffering.

Economists never saw 2008 coming, and former Federal Reserve Chairman Alan Greenspan never saw the housing crisis coming—as he testified before a congressional committee—so it is not surprising that they are being caught flat-footed now. Clearly, the Great Depression had fits and starts like this one. However, what is most serious is that it took World War II to get us out of that one.

The central banks of the world are essentially out of options, and the worst is yet to come. Hold on tight. It ain’t apt to be pretty during the balance of this decade. And global citizenry anger may be mind-boggling!

See, e.g., and… and’s-legacy-more-suffering-to-come and… (“China’s economy will slow and possibly ‘crash’ within a year as the nation’s property bubble is set to burst”) and

19 05 2010

Hold Cash!

I have believed for a long time:

[T]he stock market is a “fool’s paradise,” and I cannot explain the stock market rise—except for the old adage that what goes up comes down [often with a thud]. . . . I believe to this day: (1) The only people who make money in the stock market and know the reasons why are (a) those who trade on inside information, which of course is illegal, and (b) those who are “technical traders”. . . ; and (2) average Americans should not be in the stock market at all, because it is gambling—much like going to Las Vegas or betting on the ponies at the nearest race track.

See’s-legacy-more-suffering-to-come/; see also and and

The Wall Street Journal has an article that quotes the investment advice of Seth Klarman who runs Baupost Group, a Boston-based investment firm with about $22 billion under management. He is described by the Journal as “a conservative value investor and one of the most highly regarded in the market,” and he believes:

Anyone rushing to throw more money into shares or high-yield bonds today should think twice. And anyone with a lot invested, especially if they are risk averse, might want to think about taking some chips off the table. . . . His firm is holding a remarkable 30% of its assets in cash.

. . .

Most investors, Mr. Klarman warns, have rushed to embrace risk again as if the financial crisis never happened. “The lessons haven’t been learned,” he said. “People are back drinking the Kool-Aid again. It’s very troubling.”

. . .

On the macroeconomic outlook, Mr. Klarman is remarkably gloomy–even by the usual standards of conservative value managers. “I’m more worried about the world, broadly, than I have ever been in my career,” he says.


The worst is yet to come!

19 05 2010
Sharon Knapik

Kudos, Timothy, for providing a clear, impartial analysis of the situation. I’ve been worried since 2005. Didn’t vote for Obama, as it seemed to me he was a narcissistic liar, who had as his best accomplishment covering up a sketchy past, light on real accomplishments.

I’d like to read your take on: the impact of the CRA, especially as ramped up under Clinton, aided and abetted by ACORN banking protests- soliciting a ‘payoff’ if you will, to the progressive agenda’. Also, Summers, Rubin, and maybe Greenspan in the Clinton Admin ganging up on Brooksley Born who urged the regulation of derivatives trading. Lack of this legislation, coupled with the removal of Glass-Stegal, set the stage. The final plug was pulled when the Democrats swept into Congress- 2007 saw the removal of short-selling prohibitions and installation of mark to market. Like a game of Jenga, removal of these final blocks made the edifice crumble.

The entire financial calamity appears to me to be a culmination of several administrations ill-advised…or worse…policies. Mission accomplished.

20 05 2010

Thank you, Sharon, for your thoughtful comments.

Never forget that the lobbyists run Washington, and they do so throughout Democrat and Republican Administrations.

See, e.g.,’s-legacy-more-suffering-to-come/

Also, with respect to Obama, pick up a copy of his book, “Dreams from My Father.” You may be shocked as I was. The “whole truth” will come out some day.

See, e.g.,

20 05 2010

More Signs Of Museums Being Hit Hard

See; see also

And the worst is yet to come economically—with museums, libraries, parks and other public services being devastated!

20 05 2010

Again, Cash Is King!


22 05 2010

Congress Does Not Know What It Is Doing

The highly-respected Rasmussen Reports has concluded:

[M]ost U.S. voters continue to believe the legislators have little idea what they’re doing when it comes to the economy.

The latest national telephone survey of Likely Voters finds that just 27% are at least somewhat confident that Congress knows what it’s doing when it comes to addressing current economic problems. An overwhelming majority (72%) are not confident in Congress to address these problems.

. . .

These findings show little change from surveys dating back to late September 2008, just after the Wall Street meltdown that included the collapse of the Lehman Brothers financial firm.


It is a fact that most politicians have zero training in economics, and do not understand it, and have no appreciation for economic history. They are simply interested in getting elected and reelected, and wielding power while they have it.

24 05 2010

The Great Lie Of Europe

Writing in UK’s Telegraph, Christopher Booker says:

We have still scarcely begun to wake up to the gravity of the crisis now upon us, not just for the eurozone but also for us here in Britain and for the entire global economy. The measures so far taken to prop up the collapsing euro, such as that famous “$1 trillion package”, are no more than gestures.

Greece was just the antipasto: Italy, Spain, Portugal and others are now hanging over an abyss of debt which scarcely all the money in Europe could fill—created by countries living way beyond their means, thanks not least to the euro’s low interest rates. The only possible consequence of the collapse of one of the world’s leading currencies, leaving Europe with no money to trade in, would be utter chaos.

What we are witnessing here is a judgment on the entire deceitful and self-deceiving way in which the “European project” has been assembled over the past 53 years. One of the most important things to understand about that project is that it has only ever had one real agenda. Everything it has done has been directed to one ultimate goal, full political and economic integration. The headline labels put on the various stages of that process may have changed over the years, such as building first a “common market”, then a “single market”, finally a “constitution”. But by far the most important project of all was locking the member states into a single currency.

This was always above all a political not an economic project, to be driven through at any cost, which was why all those “Maastricht criteria” laid down to bring it about were repeatedly breached. But as expert voices were warning as long ago as the 1970s, when it was first put on the agenda, there was no way economic and monetary union could work unless it was run by a single all-powerful economic government, with the power to raise taxes.

As was advised by Sir Donald MacDougall’s report to Brussels in 1978, it could only work if [it followed] the US model. . . .

. . .

The member states were locked together willy-nilly in a one-size-fits-all system, with a single low interest rate, enabling countries such as Italy, Spain, Portugal and Greece to live on a seemingly limitless sea of borrowed money. And now, entirely predictably, judgment day has come.

If the euro does disintegrate, as Mrs Merkel warns, the consequences would be incalculable. Replacing all the national currencies was a gargantuan task, by far the most ambitious ever attempted in the name of European integration, and there is no Plan B. Without a currency, trade would collapse—leaving Britain, dependent on Europe for 50 per cent of its trade, just as seriously affected as everyone else. A system failure on this scale would make the 1930s pale into insignficance (sic).

Inevitably, cries went up last week for the EU to be transformed into a proper economic government with control over national budgets and the power to raise taxes—exactly what MacDougall and others were talking about in the 1970s. But it is too late, and all that remains are desperate gestures.

. . .

As alarming as anything, with this tsunami roaring down on us, has been the sight of our new leaders preening themselves. . . . As one analyst put it: “They are like children let loose in the sweet shop, seemingly oblivious to the horrendous reality unfolding before us.”

See; see also

Sobering, very sobering, but not surprising—and consistent with what I have been writing.

24 05 2010

Here It Comes—Or Rather, This Is What It Looks Like To Be In The Beginning Throes Of The Great Depression II

A Washington Post article states:

If one or more [European countries] fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.


Not “recession,” but the continuation of the Great Depression II.

The Post article adds:

[We are in] a “brave new world” where sovereign default in one of the world’s core economic areas is a tangible threat. Bank holdings of European debt are now being studied with the same focus given to holdings of U.S. mortgage-backed securities as the global financial crisis unfolded in 2008—and with the same suspicion that problems in one part of the world could wreck others.

The most vulnerable European countries—Greece, Spain, Portugal and Ireland—may represent only about 4 percent of world economic activity, but “the debt crisis and its ripple effects are bad news for all corners of the world,” said Cornell University economist Eswar Prasad.

. . .

U.S. trade officials, hoping the country can dramatically boost its exports, are dismayed at the steep drop in the value of the euro—which is around $1.25, down from more than $1.50 in November. The decline makes American goods more expensive compared with those produced in Europe. The slide in the common European currency could also change the way China and a host of Asian countries approach their currency policies, possibly making them less likely to agree with U.S. demands to raise the value of their money. If they raised it, Asian goods would become more expensive in world markets, making it easier for U.S. products to compete.

. . .

Inside the euro zone, banks are intimately linked, with a web of investments and cross-country bond holdings that could be a main vector for financial “contagion,” with a default in one country weakening banks elsewhere.

There are some positive impacts in all this for the United States.

For one, uncertainty about European government debt has driven global investors toward U.S. government bonds, which in turn is pushing down long-term interest rates. The 10-year Treasury bond had a rate of 3.2 percent Friday compared with nearly 4 percent last month. Those lower rates should flow through to private borrowing, helping Americans getting mortgages or businesses looking to grow.

The European panic is also lowering the price of oil and other commodities on global markets, potentially making it cheaper for Americans to fuel their cars and heat their homes. A barrel of oil went for about $70 on Friday, down from almost $87 on April 6.

A final positive for the U.S. economy is that the stronger dollar will help keep inflation in check by reducing the cost of imports. That, combined with renewed worry about the strength of the recovery, is likely to give the Fed some leeway to delay raising interest rates above their current extremely low levels longer than it would have otherwise.

The most precise comparison is to the East Asian financial crisis that enveloped Thailand, Indonesia, South Korea and other nations in 1997 and 1998. There were widespread fears that the crisis would damage the U.S. economy, including through a financial contagion effect. The Fed even cut interest rates in the fall of 1998 to try to forestall a weakening in U.S. growth.

But there was little obvious impact on the U.S. economy, which grew 4.5 percent in 1997, 4.4 percent in 1998, and 4.8 percent in 1999.

. . .

Also, it is clear that the economist Nouriel “Dr. Doom” Roubini has gone “Hollywood” on us, and is full of himself. However, like Harry Houdini, whoever doubted that? 🙂

See, e.g.,

25 05 2010

Is Gold The Next Bubble?

The Wall Street Journal has a fascinating article by Brett Arends, which is worth reading, and concludes:

Gold is a high-risk and potentially dangerous speculation. Anyone thinking of investing needs to do some serious thinking first.


25 05 2010

Museums Forced To Sell Off Collections

USA Today quotes Anne Ackerson, director of the Museum Association of New York, who “doesn’t expect museums to rebound from the effects of the recession for two years because so many states and cities have cut arts funding. ‘Museums,’ she says, ‘are lagging economic indicators.'”


Museums, libraries, universities and other educational institutions, parks and other public facilities need to brace themselves. The worst is yet to come. And no, this is not a “recession”!

25 05 2010

Is Europe Turning Japanese?

There is an article in the Wall Street Journal written by its Brussels bureau chief, Stephen Fidler, which is worthwhile reading. The author is charitable when he writes:

[A] long-lasting Japan-style post-bubble slump with deflation seems a plausible outcome for a large part of the continent.


Things will be much worse than that. He cites Adam Posen, a member of the Monetary Policy Committee of the Bank of England, as saying:

Japan’s recession was not a flat line of zero growth, but a sawtooth in which a series of recoveries were choked off by policy errors.

By the same token, the “Great Depression II”—which America, Europe and most of the global economies are in right now, and will be during the balance of this decade, if not a “generation”—is reminiscent of the Great Depression I, with a series of “green shoots” (or recoveries) followed or choked off by policy errors and other factors.

Now too, the American banking system is in bad shape and unwilling to lend, and this is true on a global scale.

The article refers to a worrying trend of corporate and household balance sheet adjustments that, were they to last, “would represent a lack of faith in future U.K. economic prospects.” This lack of faith is not unique to the UK. It is sweeping Europe and America as well.

The highly-respected Rasmussen Reports daily Presidential Tracking Poll for May 25, 2010 shows that 24 percent of the nation’s voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20.

Overall, 42 percent of voters say they at least somewhat approve of the president’s performance. That is the lowest level of approval yet measured for this president. Fifty-six percent now disapprove of his performance.

Also, support for repeal of his new national health care plan has jumped to its highest level ever. A new Rasmussen Reports national telephone survey finds that 63 percent of U.S. voters now favor repeal of the plan passed by congressional Democrats and signed into law by President Obama in March.

Prior to today, weekly polling had shown support for repeal ranging from 54 to 58 percent. Currently, just 32 percent oppose repeal.

America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times—as the Great Depression II continues to take its toll.

26 05 2010

What Would Reagan Do?

The Wall Street Journal has a fine article by David Malpass entitled, “The Panic, Round Two: What Would Reagan Do?” that is worth reading.


Yes, the panics are upon us—and there will be many of them globally—as America and the world sink deeper into what economic historians will describe 20-40 years from now as the “Great Depression II,” or by some similar label.

See, e.g.,

David Malpass is right in asking what would Reagan do, because the former president—certainly at the top of his game—might have figured out a way of getting us out of this mess, or of somehow making it less onerous than it will be. After all, he was a creature of the “Great Depression I,” and he learned its lessons well.

Unemployment peaked at 10.8 percent in December 1982, two years after his election—which was higher than any time since the first Great Depression—then dropped during the rest of Reagan’s presidency. But facts and figures do not tell the whole story of the Reagan presidency by any means: his personality and leadership qualities, and his ability to instill hope and optimism.

See, e.g.,

One must remember too that Paul Volcker was Chairman of the Fed, and he contributed mightily to keeping the economy on an even keel, and preventing runaway inflation. He was followed by Alan Greenspan, who never saw the Housing Crisis coming, and he testified to that before a House committee. Or, as Giulio Tremonti, Italy’s Minister of Economy and Finance, put it: “Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.” That speaks volumes, in terms of the human suffering domestically and globally, which Greenspan launched.

See; see also’s-legacy-more-suffering-to-come/

Implicit in Malpass’ fine article is the fact that Congress does not know what it is doing. Most politicians have zero training in economics, and do not understand it, and have no appreciation for economic history. They are simply interested in getting elected and reelected, and wielding power while they have it.

Malpass adds correctly:

As Reagan understood, true leadership requires stating goals and taking decisive action, in this case reducing government spending substantially enough to convince the private sector to invest again.

However, Ronald Reagan’s leadership was broader and more important than that. He instilled confidence and optimism when there had been little or none, across the board (e.g., national security, economics).

See also

Sadly, Reagan’s leadership and vision are lacking now, as wrong-headed politicians lead us father down the path toward financial ruin, dashing the hopes and dreams of Americans and their counterparts worldwide. However, the days of reckoning are upon us. America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times. We are beginning to see that now.

Also, Barack Obama has zero experience with respect to economic and a plethora of other issues. Americans should read (or reread) his “Dreams from My Father,” and realize that he is one of the most “uneducated” presidents in American history, in terms of real-world issues. This is not said by way of condemnation, but as a fact.

See, e.g.,

At best he is an academic. Perhaps more importantly, he and his advisers are “a bunch of academics” and ideologues, who have pre-set ideas about how the world should function, which do not square with reality. In many ways, they are the most ill-equipped individuals to confront and understand the “Great Depression II,” much get us through it.

I cannot think of another group that is so ill-equipped to deal with critical issues facing America and the world (e.g., two wars, the risk of any EMP or other devastating attack, North Korea, China, Russia, Iran, the Great Depression II). Fortunately, no calamities hit the Clinton years. We are not and will not be so lucky this time around.

Lastly, Ronald Reagan was blessed—yes, blessed by God. He had innate wisdom and a reservoir of faith, confidence, optimism and good will, and collective life experiences that allowed him to do just the right thing at the right time. Clearly, the fall of the “Evil Empire” was a shining achievement, but there were many many others too.

26 05 2010

U.S. Debt Tops $13 Trillion, Or Almost $118,000 Per Taxpayer!

Also, U.S. Debt to GDP is more than 90 percent.


26 05 2010

Barack Obama: The Lowest Approval Rating For This President

The highly-respected Rasmussen polling organization is reporting:

The Rasmussen Reports daily Presidential Tracking Poll for [May 26, 2010] shows that 23% of the nation’s voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22. That’s the lowest Approval Index rating yet measured for this president.

Enthusiasm for the president among Democrats, which bounced following passage of the health care law, has faded again. Just 48% of those in the president’s party now Strongly Approve of Obama’s performance. That’s down from 65% earlier.

Among men, 20% Strongly Approve and 50% Strongly Disapprove. Among women, those numbers are 27% and 40%.

See (emphasis added).

27 05 2010

An Anatomy Of Bank Failures

Having purchased seven failing financial institutions for clients, and having worked on plans to establish California’s Department of Financial Institutions, the following article in the Los Angeles Times is worth reading. It describes what really happens when failing financial institutions are seized, and how much it costs the government.

See,0,1275127,full.story; see also

27 05 2010

U.S. Money Supply Contracts At 1930s’ Pace

The UK Telegraph’s Ambrose Evans-Pritchard has an article about “[t]he M3 money supply in the United States . . . contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.” It is sobering, and worth reading.


28 05 2010

Las Vegas Hotel King Steve Wynn Lashes Out At Washington

Hotel magnate Wynn says Americans are afraid, and of course he is correct:

“No one has any idea what’s next…the uncertainty of the business climate in America is frightening, frightening to everybody. . . .”

In a fascinating article, the king of “sin city” added:

“There were going to be 10,000 rooms across the street and they all went bust.” So he changed the whole front of [his new Encore Beach Club] resort to close it off. . . .

. . .

Wynn speaks of “wild, uncontrolled spending,” and “unbelievable, unsustainable debt”. As he plans to split his company headquarters between Las Vegas and Macau, with a bigger emphasis on Macau because of its tremendous profitability, he has no qualms about dealing with the Chinese government.

“Macau has been steady. The shocking, unexpected government is the one in Washington.”

He’s concerned about the prospect of inflation, of FHA repeating the mistakes of Fannie and Freddie, and the cost to business from the new healthcare law. “We’re on our way to Greece, in the hands of a confused, foolish government,” Wynn says. “It’s got to stop. It’s got to stop.”

It is worthwhile watching his “no punches pulled” video comments as well.


2 06 2010

Morris: Obama Doesn’t Have A Clue

Dick Morris has a new article that is worth reading, in which he states:

Obama has no more idea how to work his way out of the economic mess into which his policies have plunged us than he does about how to clean up the oil spill that is destroying our southern coastline.

Both the financial crisis and the oil come ever closer to our shores—one from the east and the other from the south—and, between them, they loom as a testament to the incompetence of our government and of its president.

. . .

[W]e have a president who is failing because he is incompetent. It is Jimmy Carter all over again.

Who would have thought that this president, so anxious to lead us and so focused on his specific agenda and ideas, would turn out not to know what he is doing?


This should not come as a surprise to anyone. He was a “community organizer,” and not a very good one. Read (or reread) his book, “Dreams from My Father.” He has no training in economics or any business experience, nor any experience with respect to national security matters. Like those on Capitol Hill, he is a professional politician who learned how to get elected, and to wield power for good or evil. Nothing more.

See, e.g.,

7 06 2010

The Economy Will Collapse In 2011

This is the prediction of Arthur Laffer, of “Laffer Curve” fame. His article in the Wall Street Journal is worth reading and pondering.


9 06 2010

The Shadow Economy

USA Today has an article that discusses the so-called “shadow economy”—involving “a growing number of Americans who need bankruptcy protection but cannot get any benefit from it or simply cannot afford to file”—which is worth reading.


These problems will only get worse, lots worse, as America and other countries slide farther into the “Great Depression II.”

9 06 2010

Governments Out Of Options?

As indicated above, and in comments by Naoyuki Shinohara, the IMF’s deputy managing director—who was the top currency official in Japan—”a key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” In other words, the central banks and governments of the world are out of options, or close, as the “Great Depression II” continues to take its toll.


16 06 2010

EU Chief Warns Of Nightmare Vision For Europe

As the Daily Mail reports:

Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned.

In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money.

. . .

Other EU countries seeing public protests over austerity plans include Hungary, Italy and Romania, where public sector pay is to be slashed by 25 per cent.

. . .

Mr Barroso’s warning lays bare the concern at the highest level in Brussels that the economic crisis could lead to the collapse of not only the beleaguered euro, but the EU itself, along with a string of fragile democracies.

. . .

News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.

. . .

The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece.

Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.

See (emphasis added)

20 06 2010

The Great Depression Repeated

Banks and other financial institutions are not making loans except to the most creditworthy customers, which is a replay of the “Great Depression I.”

Long-time customers are being told that their loans and lines of credit are not being renewed; and bank and other financial institution employees are being rewarded for getting loans off the books, instead of creating new loans.

The ripple effects of this will be devastating.

23 06 2010

City To Lay Off All Employees, Dismantle Police Department

The city of Maywood, California will lay off all city employees and begin contracting police services with the Los Angeles County Sheriff’s Department effective July 1, the Los Angeles Times is reporting. This is a sign of things to come around the U.S., as the revenues of more and more small cities fall, and they are unable to afford essential services (e.g., parks, libraries, law enforcement).


25 06 2010

Greece Puts Its Islands Up For Sale To Save Economy

In a desperate attempt to repay its debts, and because it cannot find the monies to develop the infrastructure on the islands, Greece is preparing to sell—or offering long-term leases on—some of its 6,000 islands. Potential investors are Russians and Chinese, according to the UK’s Guardian.


In actuality, such austerity moves by Greece may be too little too late, especially as the “Great Depression II” continues to take hold globally during the balance of this decade—at the very least. Also, the amount of money raised might be a pittance when compared to Greece’s staggering debt.

The article adds:

As strikes almost paralysed the country [in May] and hedge funds bet against the economy, German politicians called for Greece to start selling islands, historic buildings and artworks. It now appears that the Greek government has heeded their demands.

28 06 2010

The Third Depression

Paul Krugman has an article in the New York Times, in which he states:

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

. . .

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost—to the world economy and, above all, to the millions of lives blighted by the absence of jobs—will nonetheless be immense.

. . .

[T]he recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. . . . [B]oth the United States and Europe are well on their way toward Japan-style deflationary traps.


This conclusion is consistent with the thesis of my article above; namely, we are in the midst of the “Great Depression II”—certainly in terms of the 20th and 21st Centuries—which will continue to unfold during at least the balance of this decade.

Krugman adds:

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks—but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity—but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Amen, in spades!

Where I differ with Krugman is that his solution is more Keynesian governmental spending, with the goal of spending our way to prosperity. As stated in my article above—and in my other recent articles and discussions—the economic tsunami that Alan Greenspan released has been rolling worldwide, with no end in sight. At most, government policies can affect it at the margins, because it will run its course, essentially oblivious to government intervention. Where and when it stops, no one knows. Originally I predicted the 2017-2019 time frame, but it may take longer than that because of misguided and wasteful government “tinkering.”

See, e.g., and and’s-legacy-more-suffering-to-come/

Lastly, the Wall Street Journal has an editorial entitled, “The Keynesian Dead End,” which concludes that spending our way to prosperity is going out of style—and essentially rebuts the solutions that Krugman recommends:

For going on three years, the developed world’s economic policy has been dominated by the revival of the old idea that vast amounts of public spending could prevent deflation, cure a recession, and ignite a new era of government-led prosperity. It hasn’t turned out that way.

. . .

The response at the White House and among Congressional leaders has been . . . Stimulus III. While talking about the need for “fiscal discipline” some time in the future, President Obama wants more spending today to again boost “demand.” Thirty months after [Obama economic adviser Larry] Summers won his first victory, we are back at the same policy stand.

The difference this time is that the Keynesian political consensus is cracking up. In Europe, the bond vigilantes have pulled the credit cards of Greece, Portugal and Spain, with Britain and Italy in their sights. Policy makers are now making a 180-degree turn from their own stimulus blowouts to cut spending and raise taxes. The austerity budget offered this month by the new British government is typical of Europe’s new consensus.

To put it another way, Germany’s Angela Merkel has won the bet she made in early 2009 by keeping her country’s stimulus far more modest. We suspect Mr. Obama will find a political stonewall this weekend in Toronto when he pleads with his fellow leaders to join him again for a spending spree.

Meanwhile, in Congress, even many Democrats are revolting against Stimulus III. The original White House package of jobless benefits and aid to the states had to be watered down several times, and the latest version failed again in the Senate late this week. . . . Mr. Obama is having his credit card pulled too—not by the bond markets, but by a voting public that sees the troubles in Europe and is telling pollsters that it doesn’t want a Grecian bath.

The Journal adds:

The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases.

Notice that we aren’t saying that spending restraint alone is a miracle economic cure. The spending cuts now in fashion in Europe are essential, but cuts by themselves won’t balance annual deficits reaching 10% of GDP. That requires new revenues from faster growth, and there’s a danger that the tax increases now sweeping Europe will dampen growth further.

President Obama’s tragic mistake was to blow out the U.S. federal balance sheet on spending that has produced little bang for the buck. . . .

With the economy in recession in 2008 and 2009, we argued that some stimulus was justified and an increase in the deficit was understandable and inevitable. However, we also argued that permanent tax cuts aimed at marginal individual and corporate tax rates would have done far more to revive animal spirits, and in our view would have led to a far more robust recovery. . . .

What the world has now reached instead is a Keynesian dead end. We are told to let Congress continue to spend and borrow until the precise moment when Summers and Mark Zandi and the other architects of our current policy say it is time to raise taxes to reduce the huge deficits and debt that their spending has produced. Meanwhile, individuals and businesses are supposed to be unaffected by the prospect of future tax increases, higher interest rates, and more government control over nearly every area of the economy. Even the CEOs of the Business Roundtable now see the damage this is doing.

A better economic policy will have to await a new Congress, which we hope at a minimum can prevent punishing tax increases. But for now the good news is that voters and markets are telling politicians to stop doing what hasn’t worked.

See (emphasis added)

Thus, economic “thinkers” continue to flail around, while the Great Depression II takes its toll, in terms of horrendous human suffering worldwide, with no end in sight.

29 06 2010

Ireland Collapses Economically

The once-proud “Celtic Tiger” of Europe is no longer growling, much less purring. It is in the throes of an economic collapse, not unlike Greece, which will become far worse before the end of this decade. The twin austerity measures of cutting public spending and raising taxes are a recipe for disaster, just as they were during the first “Great Depression” of the 20th and 21st Centuries.

Any notion that Ireland is in a “recession” is naive. Twenty-to-forty years from now, economic historians will describe this period of the tiny island nation’s history as a depression—assuming that any recovery whatsoever will have taken place by then.

See (“The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year—worse than Greece“); see also

The New York Times’ article adds:

Many voters, having experienced the pain of austerity, are expected to express their anger in the 2012 elections.

As I noted in an earlier article:

America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times.

See; see also

29 06 2010

The Death Of Community Banks

The Wall Street Journal has a fine article about the death throes of small community banks, and how they are being regulated out of existence, which is worth reading.


Having purchased failing savings and loans for our banking and non-banking clients some 20 years ago during the midst of the “Savings & Loan Crisis,” and having watched many essentially-healthy financial institutions be regulated out of existence, history is repeating itself with a vengeance.

Then as now, regulators can mark loans to market when the face amount of such loans exceeds the value of the underlying collateral, and destroy financial institutions overnight. Also, the management of such entities and key borrowers may be held personally liable, and sued—for example, to recover the proceeds of management’s “Directors and Officers Liability Insurance” (or “D&O”) coverage, and tap the policy limits.

For the most part, so-called “community banks” are nothing more than savings and loans or small commercial banks that survived the last blood bath, but they will not be so lucky this time around. As the article correctly points out in part, creditworthy customers are being told that their lines of credit are not being renewed; new loans are not being made; in some cases, loans are being called even though customers are current on their payments; and serious efforts are being taken to shrink balance sheets in the hopes that this will “appease” financial institution regulators, who will not be influenced at all in many cases.

Banks and other financial institutions hold staggering amounts of “toxic assets,” which if marked to market would make them insolvent or headed in that direction. The regulators are looking over the shoulders of management; and the resulting credit contraction is reminiscent of the “Great Depression” of the 1930s. However, much much worse is yet to come. Some 20-40 years from now, economic historians will describe the end of the last decade and this entire decade as the “Great Depression II,” or by something similar term.

Given the risks involved why would anyone go into banking as an investor or member of management, who might be wiped out or sued, respectively? Congress and the White House are putting enormous pressures on the financial institution regulators to insure the safety and soundness of the entities they regulate; and in turn, some regulators are prone to regulate risk taking “out of existence,” and thereby produce the results that the author describes. But again, it will only get worse. The handwriting is on the wall, and the chickens are coming home to roost.

Hold on tight. It isn’t apt to be pretty; and we have a long way to go until the end of this decade. What is happening here in the United States is happening in Europe and elsewhere in the world; and the snowballing effect is likely to accelerate. The economic tsunami that Alan Greenspan unleashed continues to roll worldwide, with devastating effects. As Giulio Tremonti, Italy’s Minister of Economy and Finance, has said: “Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.” That speaks volumes.

See, e.g., and

30 06 2010

The Failure Of Obama’s Economic Programs

The Wall Street Journal has a fine article entitled, “Why Obamanomics Has Failed.” which is worth reading.


2 07 2010
5 07 2010

With The US Trapped In Depression, This Really Is Starting To Feel Like 1932

This is the title of a new article by Ambrose Evans-Pritchard in the UK’s Telegraph, which is worth reading. In it, he states:

Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

. . . Eight million jobs have been lost.

. . .

This really is starting to feel like 1932.

. . .

The housing market is already crumbling as government props are pulled away. The expiry of homebuyers’ tax credit led to a 30pc fall in the number of buyers signing contracts in May. “It is cataclysmic,” said David Bloom from [worldwide banking giant] HSBC.

. . .

Investors are starting to chew over the awful possibility that America’s recovery will stall just as Asia hits the buffers. China’s manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.

See; see also (“Dow Repeats Great Depression Pattern: Charts”) and–the-great-jobs-killer-97758294.html (“Barack Obama: The great jobs killer”)

Barack Obama is this American generation’s Herbert Hoover—and so far we are only witnessing the beginning throes of the disastrous consequences of the man and his presidency.

See, e.g., and and and and

8 07 2010

The Obama Depression

Political pundit and former Bill Clinton adviser, Dick Morris, has penned a hard-hitting article in which he states:

History will probably record the Obama Administration of 2009-2013 (hopefully his only time in office) as one long recession/depression just as we see the Hoover Administration of 1929-1933.

. . .

As the debt crisis that started in Greece spreads to Europe and across the ocean, the United States’ high level of deficit spending makes us particularly vulnerable. It was recognition of that weakness that led Europeans to reduce their deficits and cut back their spending, oblivious to Obama’s request that they increase their outlays. But Obama continues his big spending and big borrowing ways in the U.S.

To this we need to add the climate of uncertainty that the president’s changes have engendered. The prospect of big tax hikes ahead in 2011 (beyond just the simple repeal of the upper income Bush tax cuts), the uncertainty in the credit markets due to the passage of the financial regulation bill, and the questions raised by possible cap and trade legislation all militate against new investment or borrowing and are inducing corporations and banks to hoard cash which might, otherwise, have stimulated economic growth.

Politically, Obama was likely to lose Congress even before this disaster hit. Now, Rasmussen has four Democratic Senate seats definitely going Republican (Arkansas, North Dakota, Indiana, and Delaware) with six more rated as tossups (Pennsylvania, Illinois, Colorado, Nevada, Washington State, and Wisconsin). California is also a likely Republican pickup. Rasmussen rates four GOP Senate seats as tossup (Ohio, Missouri, Florida, and New Hampshire), but the Democrats are unlikely to win any of them.

If the GOP picks up the seats it is likely to win, it will control the Senate by 52-48. And, in the House, the likelihood of a Republican victory is even more significant.

See ; see also

2 08 2010

The Coming Deflation

As the Wall Street Journal states:

Some of the world’s leading investors are becoming more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices.


2 08 2010

Very interesting article Timothy. Thanks for keeping us aware of what could be a dismal forecast….

2 08 2010

48% Blame Obama For Bad Economy, 47% Blame Bush

For the first time since Barack Obama assumed the presidency, voters see his policies as equally or more to blame than those of George W. Bush for the nation’s economic problems.


Despite the inherent wisdom of the American people, they are at least partially wrong with respect to this issue. Former Federal Reserve Chairman Alan Greenspan is to blame for what is happening economically, both in the United States and globally. The tsunami that he unleashed cannot be restrained by government policies, which at most affect it at the margins. Such policies can and are making things worse (e.g., the massive deficits that Obama has created).

As Italy’s Minister of Economy and Finance, Giulio Tremonti, has said:

Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.

That speaks volumes.

See; see also and’s-legacy-more-suffering-to-come/

4 08 2010

Obama Celebrates Birthday Alone In U.S., While Wife Jets Off To Spain On Air Force Two

As the Daily Mail states:

[Michelle Obama] is on a four-day visit and will be staying at the five-star Villa Padierna, rated as one of the world’s top 30 hotels, with 40 friends. The party has reserved 60 rooms.

See, e.g.,

To what extent are the American taxpayers footing her bills, in this time of economic chaos and uncertainty for so many families?

See, e.g., (“Material girl Michelle Obama is a modern-day Marie Antoinette on a glitzy Spanish vacation“) and and; see also and and

5 08 2010

The Collapse Of State And Local Governments

Political pundit and former BIll Clinton adviser, Dick Morris, has a new article about the collapse of state governments, which is worth reading. He only neglected to include local governments in his discussion.

As stated above, libraries will be closed, along with state and local parks; law enforcement will be cut back or become nonexistent; and prisoners will be released, as contemplated in California (e.g., the number of 40,000 prisoners is the target), and crime will escalate as the “Great Depression II” continues to wreak havoc in the United States and other countries.


12 08 2010

While The EU Might Survive What’s Coming, Many European Governments May Not

There is an interesting article on this subject in Forbes, which is worth reading.


21 08 2010

Falling Real Estate Prices . . . And The Worst Is Yet To Come!

The Wall Street Journal is reporting on the worst and best markets at present, in an article that is worth reading. However, the worst is yet to come in the United States and other countries.


25 08 2010

Finally, A Sense Of Reality: We Are In The “Great Depression II”!

CNBC is reporting:

Positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression, Gluskin Sheff economist David Rosenberg said [on August 24, 2010].

Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.

But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.


This echoes what I have written for a long time now—in the article above, and in two earlier articles and an interview that I gave.

See and and

Also, it is predicted that the Dow will fall to 5,000:

The Dow Jones Industrial Average will lose about half of its value over the next couple of years as it follows a Nikkei-like pattern of several sharp rallies in an overall decline, according to Charles Nenner, founder and president of Charles Nenner research.


And housing sales are plunging.

See, e.g. , and and

A New York Times article speaks in terms of “reinvigorated concerns that the United States risks sinking into the sort of economic stagnation that captured Japan during its so-called Lost Decade in the 1990s.

It adds:

“There are many ways in which you can see us almost surely being in a Japan-style malaise,” said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. “It’s just really hard to see what will bring us out.”

Japan’s years of pain were made worse by deflation—falling prices—an affliction that assailed the United States during the Great Depression and may be gathering force again.

. . .

For more than a decade, the global economy was fueled by monumental spending power underwritten by a pair of investment booms in America—the Internet explosion in the 1990s, then the exuberance over real estate. As housing prices soared, homeowners borrowed against rising values, distributing their dollars to furniture dealers in suburban malls, and furniture factories in coastal China.

But the collapse of American housing prices severed that artery of finance. Homeowners could not borrow, and they cut spending, shrinking sales for businesses and prompting layoffs.

. . .

Now, a new cause for concern is growing: the flat trajectory of prices, which might metastasize into a full-blown case of deflation.

. . .

The Fed appears to be running out of powder. “Its really powerful ammunition has been expended,” [Alan Blinder, a former vice chairman of the Federal Reserve] says.

. . .

Right now, many homeowners owe the bank more than their homes are worth, prompting some to abandon properties, adding inventory to a market choked with vacant addresses. An Obama administration program aimed at slowing foreclosures has prolonged trouble, say some economists, by failing to relieve borrowers of unsustainable debt burdens or making transparent the extent of losses yet to be confronted by the financial system.

“The big question is, who’s going to swallow the losses,” says Mr. Stiglitz. “It should be the banks, but they don’t want to. We’re likely to be in paralysis for years if they prevail.”

The Treasury sits in the middle, concerned by the continued weakness of housing, yet unwilling to pressure banks to write down mortgage balances.

Like their Japanese counterparts a decade ago, Treasury officials worry that forcing the banks to take losses could weaken them and risk another crisis.

See (emphasis added)

Lastly, as mentioned above, China’s banking system is showing “disturbing, U.S.-style cracks,” which may entail a full-blown crash of its real estate markets and its economy.

See and

Hold on tight!

6 09 2010

More Than 400 U.S. Banks Will fail, Which Is A Conservative Estimate

Economist Nouriel Roubini is predicting that more than 400 U.S. banks will fail, which I believe is conservative.

See, e.g.,

In talking with community bankers, they are not making new loans or extending existing lines of credit even to long-term, totally-creditworthy customers. They are shrinking their balance sheets and hunkering down. No amount of government prodding is apt to change that (e.g., Obama says one thing, but the federal financial institution regulators are interested in safety and soundness only, and rightly so).

As the Great Depression II continues to gather momentum in the United States and abroad—like a tsunami in the vast oceans—governments will not have any positive effect, but will only make things worse. The economic tsunami will run its course, probably toward the end of this decade; and the carnage globally between now and then will certainly rival the last Great Depression.

U.S. real estate prices will continue to plummet, despite occasional “green shoots” that realtors will use to tout their hopes and fondest dreams—as more and more are forced to leave the industry—with the “bottom” being reached perhaps in five years or so. This will create even more disastrous problems for banks and other financial institutions, and a new wave of foreclosures, which is why Roubini’s predictions are likely to prove very conservative.

Banks should be allowed to fail, and they are. Homeowners who were encouraged to buy homes that they could not afford will lose them too. This is how free markets and market economies work. Only when market discipline is restored will a state of equilibrium be reached. Between now and then, it is apt to be very painful in the U.S. and abroad.

7 09 2010

Gangster Government!

The Wall Street Journal has an editorial entitled, “The Obama Economy,” which is subtitled appropriately enough, “How trillions in fiscal and monetary stimulus produced a 1.6% recovery.”

More importantly, it states:

Democrats embarked on the most sweeping expansion of government since the 1960s, imposing national health care, rewriting financial laws from top to bottom, attempting to re-regulate the telecom industry, and imposing vast new costs on energy, among many other proposals. Not to stop there, in January it plans to impose a huge new tax increase on “the wealthy,” which in practice means on the most profitable small businesses.

Central to Mr. Obama’s political strategy for passing these priorities has been trashing business and bankers as greedy profiteers. His Administration has denounced or held up as political or legal targets the Chrysler bond holders, Wall Street bonuses, Goldman Sachs, health-insurer profits, carbon energy investors, and anyone else who has dared to oppose any of its plans to “transform” U.S. society.

. . .

As for blaming the Republicans, with only 40 and then 41 Senators they couldn’t stop so much as a swinging door. The GOP couldn’t even block the recent $10 billion teachers union bailout. The only major Obama priorities that haven’t passed—cap and tax and union card check—were blocked by a handful of Democrats who finally said “no mas.” No Administration since LBJ’s in 1965 has passed so much of its agenda in one Congress—which is precisely the problem.

. . .

Democrats purposely used the recession as a political opening to redistribute income, reverse the free-market reforms of the Reagan era, and put government at the commanding heights of economic decision-making.

Mr. Obama and the Democratic Congress have succeeded in doing all of this despite the growing opposition of the American people, who are now enduring the results. The only path back to robust growth and prosperity is to stop this agenda dead in its tracks, and then by stages to reverse it. These are the economic stakes in November.


Amen! And the symmetry with respect to Lyndon Johnson, and the fact that he could not run for reelection in 1968, is worth noting. Obama is sinking farther into the “Great Depression II” and the Afghan “tar,” both of which are likely to doom his presidency and foreclose his reelection chances in 2012

See, e.g., and

16 09 2010
Krisztian Boros

Great posts and overall blog – nice to see some truth injected into the conversations.

16 09 2010

Thank you, Krisztian, for your comments.

16 09 2010

Homeownership Is A Cruel Myth Brought To You By Realtors And Homebuilders

The Wall Street Journal has an article by Brett Arends entitled, “10 Reasons To Buy a Home.”


Generally speaking, Arends does a fine job of writing and analyzing issues. However, this article is pure propaganda, poppycock, and unabashed cheerleading for homeownership, which is offensive. Indeed, it might have been written for him at the headquarters of the realtors and/or the homebuilders. Apparently he did not read a companion article about the same subject that appears in the Journal.

See (“Allure of Home Ownership Dims, Fannie Mae Survey Shows“)

Whatever deals can be had today will be much much better and sweeter in about five years. The house you buy today, with a hefty mortgage, may be “under water” tomorrow. Hence, do not buy. Arends is wrong, dead wrong. Also, by buying at today’s still inflated prices, it is a good bet that whatever mortgage you get—albeit at a good rate of interest—will exceed the value of your house in the not-too-distant future, so it does not made sound economic sense to gamble like that. It is not an “investment”—it is a crapshoot.

Tax breaks from mortgage payments will not make any financial sense if you lose your job, or your earnings fall dramatically. Again, the “joys” of homeownership dissipate fast when you realize fully that the lender owns the structure; you don’t. You are simply a renter by another name: “owner.” Also, if deflation occurs instead of inflation, as Arends suggests, it is time to sit with cash, not with the Albatross of homeownership around your neck.

Perhaps Arends’ most specious comment is that homeownership is forced saving. Just ask those who have lost their homes already to foreclosure how they feel about this one. It was fraud sold to them on a platter, by realtors and homebuilders alike; and regrettably Arends is doing the same thing with this article. The housing inventory of unsold homes will keep on rising, and may not peak for about five years.

Put succinctly, the realtors and homebuilders have been pushing the myth of homeownership for decades now, and the chickens are coming home to roost. Their respective industries are being decimated, and far worse is yet to come. My cousin is a realtor, and he told me sometime ago that four out of five realtors would be gone, which I believe is a conservative estimate.

The United States is in the midst of the “Great Depression II,” which economic historians will describe as such (or by using similar terms) 20-40 years from now. It will not run its course until the end of this decade in all likelihood; the carnage and suffering in human terms are apt to be horrific; the economic bottom may not be reached for another five years or so; and we are not even close to the bottom of housing prices. “Cash is king,” and those who have it and “bottom feed” when the time is right will be rewarded handsomely. Until then, it is best to sit on the sidelines and watch . . . and wait.

Renters have much more flexibility in terms of being able to move as job changes take place. Also, they are not burdened by the costs of property taxes, endless repairs . . . and the list goes on and on. Homeownership is a luxury and a burden and a myth. Your lender is really the owner, while you are simply a “slave” to the mortgage. Wake up, Americans, and say no to the propaganda spewed by the realtors and homebuilders, who are like used car salesmen—they do not have your best interests in mind.

See, e.g., and’s-legacy-more-suffering-to-come

The Wall Street Journal has a good article that contains tips about how renters can protect themselves against getting scammed in these difficult economic times, which is worth reading too.


However, perhaps most sobering is the fact that an “estimated 40% of American homeowners [will have] mortgages in excess of the value of their homes.” I believe this prediction is still very conservative, and that things will get a whole lot worse than this. In an excellent Wall Street Journal article, U.S. News & World Report’s Mort Zuckerman adds:

While the foreclosure pipeline remains clogged, as it unclogs a new wave of homes will wash into the market and precipitate additional downward pressure on prices. The number of foreclosed homes put on the market by banks will be a more powerful influence on the further decline of home prices than either consumer demand or interest rates.

. . .

The high end of the market, in particular, is under great pressure.

. . .

The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value. So it is not too difficult to understand why demand for housing has declined and will not revive anytime soon.

This is a disturbing development for those who believe that housing is going to lead America to an economic recovery, as it did during the Great Depression and every recession since. In the past, residential construction preceded the recovery in the larger economy. This time a lead weight on recovery has been the disappearance of some $6 trillion of home equity value, a loss that has had a devastating effect on consumer confidence, retirement savings and current spending.

See, e.g.,

16 09 2010

You get a ” Smilin’ Jack Sez ” rating of five stars in our theme of the day
” TELLING THE TRUTH “. Again, if other reports were as accurate as yours, we wouldn’t be in up to our necks in debt because of the present administration and his hoodlums…up to our ankles maybe, but most everyone will agree that we are in a nose-dive like you say, and it isn’t being reported by most of the media. Keep up the excellent posts…we need more like you.

20 09 2010

“Recession Ended In June 2009”

This is the title of a Wall Street Journal article, which quotes the National Bureau of Economic Research—”the unofficial arbiter of the start and end dates of a recession”—as having determined that the “recession” began in December of 2007 and ended in June of 2009.

The Journal added:

The decision by the NBER means that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in 2007.


There is one thing for certain with respect to economists: they are almost always wrong in predicting the future, and often wrong in assessing the past as well. They make weathermen (and women) look like geniuses by comparison.

They never saw the “Great Depression II” coming, and they do not have the foggiest notion that we are in it now. At best, 20-40 years from now, economic historians may describe it as such (or by some similar name), after a decade of carnage and unfathomable human suffering—much like the first Great Depression, where “green shoots” appeared from time to time too.

And the economists’ hero and “champion,” former Federal Reserve Chairman Alan Greenspan—who is responsible for what Americans and their counterparts in other countries are going through and will experience in the future—testified before a House Committee that he never saw the housing crisis coming. As I have written before:

Greenspan is the architect of the enormous economic “bubble” that has burst globally. No longer is he revered as a “potentate.” His reputation is in tatters. Giulio Tremonti, Italy’s Minister of Economy and Finance, has said: “Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.” That speaks volumes.

See; see also and and

Greenspan should be ostracized and consigned to oblivion, not revered by anyone. He is responsible for the enormous suffering that Americans and their counterparts abroad have been going through, which will get even worse between now and the end of this decade.

25 09 2010

He’s not revered? He comes out and says the tax cuts shouldn’t be extended and the left jump around saying see, they shouldn’t

5 10 2010

IMF Admits The West Is Stuck In Near Depression

The IMF is conservative, and is reluctant to admit that the “Great Depression II” is upon us, for fear that panics may erode economies even more—which will happen when the economic realities are realized fully around the globe. An article on this subject in UK’s Telegraph is worth reading.


9 10 2010
Timothy D. Naegele

More Uncertainties In the U.S. Housing Market

The Wall Street Journal has a fine editorial about foreclosure moratoriums, which are apt to raise more havoc in the housing industry, and prevent housing prices from reaching a bottom.

See; see also

12 10 2010
Timothy D. Naegele

85 percent of Americans Are Angry Or Dissatisfied With Economy

A poll by ABC and Yahoo! News has found that eighty-five percent of Americans are either angry about the economy or at least dissatisfied with it, which is fueling the Republican advantage in the upcoming elections.


Because the economy is going to get far worse during the balance of this decade, this anger will grow even more dramatically. As I wrote a year and a half ago:

America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times.


25 10 2010
Timothy D. Naegele

“Green Shoots For Housing Mowed Down”—And Become Dead Weeds

The Wall Street Journal has an article by this title about the American housing market and its effect on the U.S. economy, which states:

[T]he foreclosure debacle . . . is roiling housing just as some positive signs were emerging. . . .

. . .

The trouble won’t necessarily show up in housing reports this week. . . .

. . .

[T]hese figures will reflect conditions mostly before banks temporarily halted foreclosures due to questionable affidavits. More telling may be recent declines in the weekly mortgage-applications survey from the Mortgage Bankers of America, which showed purchasing activity off nearly 40% from a year ago.

For their part, banks are moving to restart foreclosures and reassure buyers that markets are functioning. But the legal logjam mightn’t clear quickly, given what are expected to be renewed challenges from homeowners’ lawyers and skeptical judges.

The upshot is the level of new foreclosure sales, a key driver of current housing activity, may be damped for months. Home prices may initially benefit from having fewer foreclosures in the mix. But any rise is likely to be short-lived, especially if buyers hibernate until the fiasco gets sorted out.

Moreover, once the legal problems clear, a backlog of discounted properties will flood the market. Economists at Wells Fargo Securities noted last week that there are two million homes in the process of foreclosure and another two million with mortgages 90 days past due. They expect home prices to fall an additional 5% to 8% next year.

Falling prices and legal uncertainty, meanwhile, may lead “to even more conservative appraisals and even tighter underwriting standards,” the Wells Fargo economists reckon.

That, in turn, could blunt the benefit from superlow mortgage rates, currently around 4.2% for 30-year loans. It could also prompt the Federal Reserve to try to drive borrowing rates even lower. While a housing rebound mightn’t be a must for an economic recovery, a renewed housing downturn almost certainly will undermine one.


15 11 2010
Timothy D. Naegele

Is Europe Collapsing?

In an excellent UK Telegraph article by Ambrose Evans-Pritchard entitled, “Europe stumbles blindly towards its 1931 moment,” it is stated:

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt—the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.

“If that is not enough to worry about financial contagion, what is? The ECB’s lack of action begs the question as to whether it is fulfilling its financial stability mandate,” he said. That is a polite way of putting it.

The eurozone’s fiscal fund (European Financial Stability Facility) is fatally flawed. Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them. This lacks political credibility and may be tested to destruction if—as seems likely—Ireland is forced to ask for help. At which moment the chain-reaction begins in earnest, starting with Iberia.

It was a grave error for Germany’s Angela Merkel and France’s Nicolas Sarkozy to invoke the spectre of sovereign defaults and bondholder “haircuts” at this delicate juncture, ignoring warnings from ECB chief Jean-Claude Trichet that such talk would set off investor flight from high-debt states.

EU leaders have since made a clumsy attempt to undo the damage, insisting that the policy shift would have “no impact whatsoever” on existing bonds. It would come into force only after mid-2013 under the new bail-out mechanism. Nobody is fooled by such a distinction.

“This is a breath-taking mixture of suicidal irresponsibility and farcical incoherence,” said Marco Annunziata from Unicredit.

“If by 2013 countries like Greece, Ireland and Portugal are still in a shaky position, any new debt issued will carry exorbitant yields. The EU would then have to choose between a full-fledged, open-ended bail-out, and reneging on the promise that existing debt would not be restructured. Will German voters then accept higher taxes to save their profligate neighbours?” he said.

In May it was enough for the EU to announce a €750bn safety-net with the IMF for eurozone debtors. Bond spreads narrowed. A spike in economic output—led by Germany’s rogue growth of 9pc (annualised) in the second quarter—beguiled EU elites into believing that monetary union had survived its ordeal by fire. It had not, and this time they will have to put up real money.

Sadly for Ireland, events have snowballed out of control. Confidence has collapsed before Irish export industries—pharma, medical devices, IT, and backroom services—have had time to pull the country out of its tailspin.

Premier Brian Cowen—who presides over a budget deficit of 32pc of GDP this year—still insists that no rescue is needed. “We have adequate funding right up until July,” he said. Mr Cowan must know this is not enough. Funding for Irish banks has evaporated, and with it funding for Irish firms.

As we learn from leaks that “technical” talks are under way on the terms of any EU bail-out, it can only be a matter of weeks, or days, before Ireland has to tap EFSF—for €80bn to €85bn, says Barclays Capital.

Portugal is in worse shape than Ireland. Total debt is 330pc of GDP. The current account deficit is near 12pc of GDP (while Ireland is moving into surplus). Portuguese banks rely on foreign wholesale funding to cover 40pc of assets.

The country has been trapped in perma-slump with an over-valued currency for almost a decade. Successive waves of austerity have failed to make a lasting dent on the fiscal deficit, yet have been enough to sap the authority of the ruling socialists and revive the far-Left.

Former ministers are already talking openly of the need for an EU-IMF rescue. It is hard to see how Portugal could avoid being sucked into the vortex alongside Ireland. Europe and the IMF would then face a cumulative bail-out bill of €200bn or so. That stretches the EFSF to its credible limits.

The focus would shift instantly to Spain, where economic growth stalled to zero in the third quarter, car sales fell 38pc in October, a 5pc cut in public wages has yet to bite, and roughly [one million] unsold homes are still hanging over the property market. The problem is not the Spanish state as such: the Achilles Heel is corporate debt of 137pc of GDP, and the sums owed to foreign creditors that must be rolled over each quarter.

The risks are obvious. Unless core EMU countries raise fresh funds to boost the collateral of the rescue fund, markets will not believe that the EFSF has the firepower to stand behind Spain. Will Germany’s Bundestag vote more funds? Will the Dutch? Tweede Kamer, where right-wing populist Geert Wilders now holds the political balance, adamantly opposes such help, and might well use such a crisis to launch a bid for power.

It is far from clear what would happen if Italy was forced to provide its share of a triple bail-out for Ireland, Portugal and Spain. Italy’s public debt is already near danger point at 115pc of GDP. It is also the third-largest debt in the world after that of Japan and the US. French banks alone have $476bn of exposure to Italian debt (BIS data).

While Italy has kept a tight rein on spending, it is not in good health. Growth has stalled; industrial output fell 2.1pc in September; and the Berlusconi government is disintegrating. Four ministers are expected to resign on Monday.

It is clear by now that IMF-style austerity and debt-deflation is not a workable policy for the high-debt states of peripheral Europe, since it cannot be offset by the IMF cure of devaluation. The collapse of tax revenues has caused fiscal deficits to remain stubbornly high. The real debt burden has risen further.

The ECB is the last line of defence. It can halt the immediate Irish crisis whenever it wishes by buying Irish bonds. Yet instead of pulling out all the stops to save monetary union, the bank is winding down its emergency operations and draining liquidity. It is repeating the policy error it made by raising rates into the teeth of the crisis in July 2008.

Yes, the ECB is already propping up Ireland and Club Med by unlimited lending to local banks that then rotate into their own government debt in an internal “carry trade”. And yes, the ECB is understandably wary of crossing the fateful line from monetary to fiscal policy by funding treasury debt.

Bundesbank chief Axel Weber might fairly conclude that it is impossible at this stage to reconcile the needs of Germany and the big debtors. If the ECB prints money on the scale required to underpin the South, it would set off German inflation, destroy German faith in monetary union, and perhaps run afoul of Germany’s constitutional court. If EMU must split in two, it might as well be done on Teutonic terms.

All this is understandable, but is Chancellor Merkel really going to let subordinate officials at the ECB destroy Germany’s half-century investment in the post-war order of Europe, and risk Götterdämmerung [or a collapse marked by catastrophic violence and disorder]?

See (emphasis added)

23 11 2010
Timothy D. Naegele

How The Financial Crisis Happened

Peter Wallison of the Financial Crisis Inquiry Commission tells what he has learned, which is worthwhile watching.


23 11 2010
Timothy D. Naegele

“Shadow Inventory” Of 2.1 Million Homes Looms In U.S. Market

In a short but very important article, the Los Angeles Times is reporting:

A supply of 2.1 million homes poised for foreclosure or delinquency potentially looms over the nation’s housing market, according to data released Monday.

This “shadow inventory” of residential real estate—property that is in foreclosure, has a loan 90 days past due or has been taken back by a lender and is not yet listed for sale—stood at an eight-month supply at the end of August, according to Santa Ana mortgage research firm CoreLogic, which released the data. That was an increase from 1.9 million, a five-month supply, a year earlier.

The total number of U.S. properties listed for sale at the end of August plus the unlisted shadow inventory was 6.3 million, representing a 23-month supply of homes, according to CoreLogic, more than three times the amount considered healthy by economists. A year earlier, the total was 6.1 million, or a 17-month supply.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” CoreLogic chief economist Mark Fleming said. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time.”

But whether—and when—those shadow-inventory properties will hit the market remains unclear.

Some big lenders have put foreclosure moratoriums in place after concerns over foreclosure practices emerged in October and November. The Obama administration and local governments also continue to push efforts to modify the loans of troubled borrowers.

See,0,6137482.story; see also

24 11 2010
Timothy D. Naegele

A Dangerous Bubble Is Emerging In China

This is the title of a Forbes’ article, which adds:

[A] mania about China has gripped too many investors. Anything with China in its name gets hot in the way dot-com got people’s blood pulsing in the 1990s. Many of America’s biggest-gaining initial public offerings this year have been of Chinese firms. Many of those companies deserve high valuations, but not all of them.

. . .

There is undoubtedly a bubble emerging in some of the stock prices of Chinese companies, so be really cautious about where you place your bets in the coming months. Personally, I wouldn’t put money into any public company that hasn’t proven able to turn a profit.

See; see also (“China’s economy will slow and possibly ‘crash’ within a year as the nation’s property bubble is set to burst”) and (China’s banking system is showing “disturbing, U.S.-style cracks,” which may entail a full-blown crash of its real estate markets and its economy)

1 12 2010
Timothy D. Naegele

American Exceptionalism Endures, But . . .

In a thought-provoking article by U.S. News & World Report’s Mort Zuckerman entitled, “The Danger of a Global Double Dip Recession Is Real,” he writes:

The modern world has for centuries been dominated economically, intellectually, and physically by the civilization that arose in Western Europe in the wake of the Renaissance and Reformation and spread across the Atlantic.

Will that one day be seen as a passing phenomenon doomed to ascend ever upward and then slowly fizzle out like a firework?

. . .

Are our current plagues—the riots first in Athens and then in Paris, our global economic crisis manifest in the riots and rampant sovereign debt—merely a symptom of a deeper decay of a civilization in the autumn of its existence?

. . .

Money is surely the great corrupter of American democracy. Congressmen have to spend more of their time raising money for misleading and defamatory television commercials—and resisting briberies of one kind or another—than they spend studying our predicaments.

The global prosperity of much of the 20th century would seem to belie the pessimists, but I don’t think there is much doubt the moral authority of the West has dramatically declined in the face of the financial crisis. It has revealed deep fault lines within Western economies that have spread to the global economy.

The majority of Western governments are running fiscal deficits of 10 percent or more relative to GDP, but it is increasingly clear that there will be no quick fixes, that big government and fiscal deficits will not bring us back to the status quo ante. Indeed, the tidal wave of red ink has meant that the leverage-led or debt-led growth model is dead.

Developed countries will be forced to deal with their debt on every level, from the personal to the corporate to the sovereign. Being able to borrow may have made people feel richer, but having to repay the debt is certainly making them feel poorer, particularly since the unfunded liabilities that many governments face from aging populations will have to be paid for by a shrinking band of workers.

. . .

The present model of global growth had served excess Western consumption with inexpensive products from the East. The result is plain to see: The West has excessive debt, while China has excessive capacity and inadequate consumption, as well as high levels of savings and our debt.

The deficits we face are a dagger pointing at the heart of the American economy. They threaten that the United States will evolve into another aging welfare state, where fiscal expenditures shift from defense to social welfare, and America’s power in the world will shrink. It has clearly happened in Western Europe, which can no longer defend itself but relies on the United States.

. . .

It’s the defense readiness of the United States that makes it possible for the world to focus on economic priorities, including trade, investment, access to markets, and a better life for the people.

. . .

In the United States, gloom has spread to our policymakers on how to deal with our economic dilemmas. Monetary policy is relatively ineffective because we are in, or near, liquidity trap conditions. Our economy is so weak that lower interest rates and other monetary tools are not working. In the liquidity trap, no matter how much money is thrown into the system, people have so little confidence that they tend to hoard it. Similarly, fiscal policy is beginning to reach its limits. High debt levels can raise concerns about the creditworthiness of our government. This in turn could lead to higher long-term interest rates that would aggravate the economic contraction.

. . .

American exceptionalism endures. But we must confront our dysfunctional and profligate government. America was founded on the principle of creating a better life for our children and grandchildren. We can do it. We aren’t doing it.


6 12 2010
Timothy D. Naegele

California On The Brink

The UK’s Economist has an article entitled, “The tide begins to turn”—and subtitled, “For once, California’s prospects seem better in the long term than in the short”—which is pure poppycock. The article is worth reading to see how out of touch some people are with respect to the economic realities that are sweeping the world, and will prevail at least through the balance of this decade.


First, I live in Southern California part of the year, where I was born and raised before working nonstop in Washington, D.C. for 21 years. I love the state; however, California’s prospects have not gotten better at all, and its long-term prognosis is even more dire. The state has diversity, great weather and natural beauty, which are perhaps unsurpassed anywhere else in the world. Yet, its parks, libraries, schools and other governmental facilities may be closed; law enforcement may undergo substantial cutbacks; state prisons may have to release significant numbers of inmates, as the Economist points out; and crime may skyrocket.

Second, the Democrats have driven the state into the ground, economically; and at its most crucial moment, they are in charge once again—like putting alcoholics in charge of running the local bar (or pub). Also, they are like Salmon trying to swim upstream, against a strong tide of anti-Obama and anti-Democrat sentiment nationally that was evident in the mid-term elections last month. Independents—of which I am one, and have been for more than 20 years, after having been a Democrat and then a Republican—joined with “disenchanted” Democrats and members of the Tea Party movement nationally to reject Barack Obama and his Democrats resoundingly.

Third, because California is bankrupt, and there is no way that its Democrats—who are responsible for the state’s problems—can sober up all of a sudden, and get “newfound religion,” they will turn to the federal government in Washington to bail them out. However, having worked on and with Capitol Hill for many years, the anti-California sentiment is strong even under the most positive economic conditions, which certainly do not exist today. The country as a whole is hurting, and this will be true for the balance of this decade; and the Republicans who control the House of Representatives are not going to bail out California and its Democrats. They will be made to suffer, at the very moment when the state is hurting most. They will pay dearly for their unbridled Liberalism, which is out of step with the rest of the nation.

Fourth, Barack Obama cannot help California, because any “big-dollar” rescue plans that the state truly needs will be blocked in Congress. Also, he is trying to save his own hide, at a time when we are witnessing his end politically. He will not be reelected in 2012, but he will do everything that he can between now and then in a desperate albeit futile effort to change that result. Helping California while the rest of the nation suffers is not in his best interests, nor does such help bode well for his long-term political survival; however, he may have to try to produce such aid, to keep California’s voters and electoral votes clearly in his column. While the fact that California bucked the national trend and elected Democrats to its statewide offices may be gratifying to him, it does not help him politically with the rest of the country. California is considered to be “la la land” to many Americans and members of Congress, and a land of nonstop “wackos” and “loonies,” and the mid-term election results simply reinforced such impressions.

Fifth, California does not have time to get its economic house in order. Time is not a friend of a state that is effectively on “life support.” Also, all of the political “fairness” reforms that theoretically might be become possible or present in the future—according to the Economist—will not make a tinker’s damn to a state economy that is bankrupt now and in the foreseeable future (e.g., during the balance of this decade). Indeed, economically, they are akin to rearranging deck chairs on the Titanic. With no realistic political or economic possibility of turning back the clock on the damage done to the state by the Democrats in the past, and essentially no chance that the congressional Republicans will bail out the state, the most dire predictions for the rest of this decade are likely to realized in California.

Hold on tight. It is apt to get very ugly for the state, Obama and his Democrats. The chickens are coming home to roost, which is happening in Europe too.

See, e.g., and

10 12 2010
Timothy D. Naegele

U.S. Home Values To Drop By $1.7 Trillion This Year

As the “Great Depression II” continues to take its toll during the balance of this decade, Bloomberg is reporting:

U.S. home values are poised to drop by more than $1.7 trillion this year amid rising foreclosures and the expiration of homebuyer tax credits, said Zillow Inc., a closely held provider of home price data.

This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based company said today in a statement.

“It’s definitely going to continue into 2011,” Stan Humphries, Zillow’s chief economist, said in an interview on Bloomberg Television today. “The back half of 2010 looked horrible and 2011 should look like the mirror image of that.”


16 12 2010
Timothy D. Naegele

The Great Depression II

Despite the “green shoots”—or promising economic news, which seems to be present on both sides of the Atlantic and elsewhere in the world—one must never forget that the same thing occurred during the Great Depression of the last century too. Yet, we did not emerge from that depression until the onset of World War II.

Vernon L. Smith, Nobel Laureate in Economics, and Steven Gjerstad wrote last year in the Wall Street Journal:

The events of the past 10 years have an eerie similarity to the period leading up to the Great Depression.


These words were sobering then, and they are sobering now. Indeed, the predictions that I made last year have been coming true as well:

America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times.

See; see also

What happened in last month’s mid-term elections in the United States is just the beginning, with much more to come.

14 01 2011
Timothy D. Naegele

What Remains Of An Undergraduate Degree In Economics

As indicated above and elsewhere in my writings, I believe:

Economists are like mindless lemmings; and their reliability is less than that of weathermen (and women) on TV. They never saw the downturn coming; they have been at a loss to predict its duration; and they do not have an earthly clue about where we are going. The best of the lot might be able to describe what happened in the past, but not much more than that.

We are in the midst of the “Great Depression II,” which economic historians will describe as such 20-40 years from now, or by using similar descriptions. Yes, there are “green shoots,” and will be from time to time, just as there were during the Great Depression of the last century too. However, it did not end until the onset of World War II—and not because of any governmental economic programs or “tinkering.”

Hold on tight, and sit on the sidelines with cash. Things will get very ugly before this decade has run its course.

Having read this, a Wall Street Journal contributor brought words by economist Joan Robinson to my attention, which are wise and worthwhile repeating:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

See, e.g.,; see also

27 01 2011
Timothy D. Naegele

Will Obama Dig Us Out Of The Second Great Depression? Do You Believe In The Tooth Fairy?

In another scintillating and scorching column, Ann Coulter writes:

I missed the middle section of Obama’s State of the Union address when I took a break to read “War and Peace,” but I gather he never got around to what I was hoping he’d say, which is: “What was I thinking?”

The national debt is $14 trillion, the Democrats won’t stop spending, and President Nero gave us a long gaseous speech about his Stradivarius.

. . .

Obama said the government was already “investing” in solar panels! That’s a total relief. This must be how the president who brought us “Recovery Summer” is going to dig us out of the second Great Depression.

But I do wonder why no private lender considered solar panels a wise investment, forcing solar panel manufacturers to turn to the government for loans, followed by endless tax credits just to break even.

. . .

Remember how massive government “investments” gave rise to the telephone, the light bulb, the automobile, the airplane, the personal computer … OK, none of those.

But massive government expenditures did give us Amtrak and the TSA!

The only thing Obama vowed to cut were “earmarks.” Yippee! The guy with the ears is against earmarks. Yes, the same president who quadrupled our deficit by giving money away to his UAW pals, Wall Street cronies and government workers is now lecturing us about earmarks. This is a bit like being scolded by Charlie Sheen for ordering a second wine cooler.

. . .

The big laugh line was when Nero said mockingly, “I heard rumors that a few of you still have concerns about the health care law.” That’s called “60 percent of the American public.” It’s not a joke, and it’s not funny.


Even more sobering than Ann Coulter’s often humorous insights is a Wall Street Journal editorial entitled, “After You, Mr. Ryan”—and subtitled, “The President says the deficit is the GOP’s problem now”—which states in pertinent part:

President Obama’s political message in Tuesday’s State of the Union address boils down to this: Republicans, it’s your budget problem now.

The deficit is awful and must be cut, entitlements are unsustainable and must be addressed, the tax code hurts growth and must be reformed, and government should be smaller and more efficient, but don’t look to Mr. Obama for ideas on how to fix any of this. Go ahead and cut spending and Medicare if you want, Republicans. The President will get back to you with his reply as time and politics allow.


Having let former House Speaker Nancy Pelosi and her fellow Democrats in Congress write the legislation that has put our great nation in its present financial bind, it is not surprising that Obama would once again abdicate his responsibilities and try to shift blame to others.

The Journal’s editorial continues:

As political strategy, perhaps this will turn out to be shrewd. Republicans will advance their budget and spending cuts, Democrats will attack them, the voters will sour, and Mr. Obama will ride to re-election. It happened in 1996.

. . .

At least the address had good timing, because less than 12 hours later the Congressional Budget Office released its annual budget review and exposed how deep the fiscal mess really is. Even CBO dared to call it “daunting,” which for these budget gnomes is a primal scream.

Eighteen months after the recession formally ended, the federal deficit for fiscal 2011 (through September) is expected to increase once again, this time to $1.48 trillion, or 9.8% of GDP. That’s a share of GDP topped since World War II only by the 10% reached in Mr. Obama’s first year in office, when at least the recession was an excuse. The annual deficit in the 1980s never exceeded 6% of GDP.

. . .

So this is the ugly budget reality that House Republicans are inheriting. In his Tuesday night response to Mr. Obama, House Budget Chairman [Paul Ryan] repeated a line he has often used that the U.S. may be at a budget “tipping point.” Either Congress begins to control its political appetites, or the debt financing and inevitable tax increases that are coming will erode our economic well-being. The CBO numbers bear him out.

Judging by Tuesday night, Republicans will have to start this reformation without much help from the President. Perhaps if they lead, the public will put enough pressure on Mr. Obama that he has no choice but to follow.

Again, Obama is a far-Left, anti-war, raving narcissist who has been weakening this great nation at every turn since he became the president. He must be removed from office at the earliest date possible, before he can do even greater damage.

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