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 Posted: Thu Nov 20, 2008 8:35 am Post subject: 30 reasons for Great Depression 2 by 2011 |
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30 reasons for Great Depression 2 by 2011
New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster
By Paul B. Farrell, MarketWatch
Nov 19, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- By 2011? No recovery? No new bull? "Hey
Paul, why do you keep talking about a bigger crash coming by 2011?" Readers
ask that often. So here's a sequel to my predictions of 2000 and 2004, with a
look three years ahead:
First. Dot-com crash
We pinpointed the dot-com crash at its peak, in a March 20, 2000 column: "Next
crash? Sorry, you won't see it coming." Bulls-eye: The dot-com bubble popped.
The economy went into a 30-month recession. The stock market lost $8 trillion.
And today, over eight years later, the market is still roughly 40% below its
2000 peak. Factor in inflation and the average stock has lost well over 50% of
its value. Stocks have proven to be a very big loser, a bad investment for
Americans, thanks to Wall Street's selfish greed, plus the complicity and
naiveté of politicians, press and public.
Second. Subprime meltdown
We reported on warnings of another crash coming as early as 2004, wrote a
sequel, also titled "Next crash? Sorry, you won't see it coming." Yes, we were
early, but in good company. We wrote many more warning columns. Few listened.
Subsequent events, notably former Fed Chairman Alan Greenspan's admission of
his failures in congressional testimony, prove that if he and other Reaganomic
ideologues weren't so myopic and intransigent about proving their free-market
deregulation theories, they could have acted earlier and prevented today's
colossal mess. Instead, their ideology kept the bubble blowing, delayed the
pop, making matters worse.
So once again, as history proves over and over, ideology trumps common sense,
reality and the facts. Greed drives ideologues to blow bubbles. They pop.
Crashes happen. The public is collateral damage.
Third. Megabubble cycles
We also detailed the broader, accelerating macroeconomic sweep of cycles last
summer in columns like "20 reasons new megabubble pops in 2011." We summarized
a long list of major warnings from financial periodicals -- Forbes, Fortune,
the Wall Street Journal, Economist -- and from the voices of Warren Buffett,
Bill Gross, a sitting Fed governor and a former Commerce secretary. Multiple
warnings "hiding in plain sight," beginning with a Fed governor warning
Greenspan in 2000 about subprime risk.
But the big shocker came from the new Treasury secretary two years before the
meltdown: Bloomberg News reports that shortly after leaving Wall Street as
Goldman Sachs' CEO, Henry Paulson was at Camp David warning the president and
his staff of "over-the-counter derivatives as an example of financial
innovation that could, under certain circumstances, blow up in Wall Street's
face and affect the whole economy."
Yes, they knew. And still both Paulson, a Wall Street insider, and Greenspan's
successor, Ben Bernanke, a Princeton scholar of the Great Depression, stayed
trapped in denial and kept happy-talking the public for months after the
meltdown began in mid-2007. Get it? While they could have put the brakes on
this meltdown years ago, our leaders were prisoners of their distorted,
inflexible views of conservative Reaganomics ideology.
As a result, once again the "best and the brightest" failed America and now
they and their buddies in Washington and Corporate America are setting up the
Crash of 2011.
Now it's time for my 2008 update, a look into the future where things will get
far worse during the next presidential term. And given human behavior,
especially in the deep recesses of Wall Street's "greed is good" DNA, it seems
inevitable that no matter how well-intentioned the new president may be Wall
Street and Washington's 41,000 special-interest lobbyists will drive America
into the Great Depression 2.
30 'leading edge' indicators of the coming Great Depression 2
Every day there is more breaking news, proof Wall Street's greed is already
back to "business as usual" and in denial, grabbing more and more from the new
"Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds
in a toy store at Christmas -- anything to boost earnings, profits and stock
prices, and keep those bonuses and salaries flowing, anything to blow a new
bubble.
Scan these 30 "leading indicators." Each problem has one or more possible
solutions, but lacks unified political support. Time's running out. We're
already at the edge. Add up the trillions in debt: Any collective solution
will only compound our problems, because the cumulative debt will overwhelm
us, make matters worse:
America's credit rating may soon be downgraded below AAA
Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"
Congress has no oversight of $700 billion, and Paulson's Wall Street Trojan
Horse
King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing
markets
Goldman, Morgan lost tens of billions, but planning over $13 billion in
bonuses this year
AIG bails big banks out of $150 billion in credit swaps, protects shareholders
before taxpayers
American Express joins Goldman, Morgan as bank holding firms, looking for Fed
money
Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to
states
State revenues down, taxes and debt up; hiring, spending, borrowing add even
more debt
State, municipal, corporate pensions lost hundreds of billions on derivative
swaps
Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
Fed also plans to provide billions to $3.6 trillion money-market fund industry
Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
Washington manipulating data: War not $600 billion but estimates actually $3
trillion
Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion
Street write-offs
Commodities down, resource exporters and currencies dropping, triggering a
global meltdown
Big three automakers near bankruptcy; unions, workers, retirees will suffer
Corporate bond market, both junk and top-rated, slumps more than 25%
Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free
fall
Unemployment heading toward 8% plus; more 1930's photos of soup lines
Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
China's sees GDP growth drop, crates $586 billion stimulus; deflation is now
global, hitting even Dubai
Despite global recession, U.S. trade deficit continues, now at $650 billion
The 800-pound gorillas: Social Security, Medicare with $60 trillion in
unfunded liabilities
Now 46 million uninsured as medical, drug costs explode
New-New Deal: U.S. planning billions for infrastructure, adding to
unsustainable debt
Outgoing leaders handicapping new administration with huge liabilities
The "antitaxes" message is a new bubble, a new version of the American dream
offering a free lunch, no sacrifices, exposing us to more false promises
Will the next meltdown, the third of the 21st Century, trigger a second Great
Depression? Or will the 2007-08 crisis simply morph into a painful extension
of today's mess to 2011 and beyond, with no new bull market, no economic
recovery as our new president hopes?
Perhaps some of the first 29 problems may be solved separately, but
collectively, after building on a failed ideology, they spell disaster. So
listen closely to "leading indicator" No. 30:
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John
Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of
State and a former chairman of the N.Y. Fed. He says America's problems will
take years and will burn trillions.
He sees "nothing but large increases in the deficit ... I think it would be
worse than the depression. ... Before I go to sleep at night, I wonder if
tomorrow is the day Moody's and S&P will announce a downgrade of U.S.
government bonds." It'll get worse because "the public is not prepared to
increase taxes. Both parties were for reducing taxes, reducing income to
government, and both parties favored a number of new programs, all very costly
and all done by the government."
Reuters concludes: "Whitehead said he is speaking out on this topic because he
is concerned no lawmakers are against these new spending programs and none
will stand up and call for higher taxes. 'I just want to get people thinking
about this, and to realize this is a road to disaster,' said Whitehead. 'I've
always been a positive person and optimistic, but I don't see a solution
here.'"
We see the Great Depression 2. Why? Wall Street's self-interested greed. They
are their own worst enemy ... and America's too.
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2008 MarketWatch, Inc.
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