3rd World America: By UofM Economist Carmen Reinhart & Harvard Economist Ken Rogoff

[ByLoSellHi]

Just read it. It isn't that long, and it's fascinating.

Draw your own conclusions. The basic point is that there is a perfect storm brewing in the U.S.; the bursting of the housing bubble is playing the role that the bursting of the dot-com bubble played in 2001, while at the same time, the subprime crisis is creating a credit crunch reminiscent of the crunch after the savings-and-loan crisis of the late 1980s.

What's the real significance of these occurrences? It's that each crisis is bad enough by itself to derail the economy, but now these disastrous and very real conditions (real in the empirical sense) are occurring at the SAME TIME.

Agree or disagree. I found this to be a thoroughly researched, well-cited, and very rational treatise laying forth a nasty vision of what the U.S. could be in store for over a protracted period of time.

I hope the authors' vision is wrong, yet fear it may be correct.

http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf

 

[mokwit]

Goebbels (Kudlow) will publicly humiliate it and Paulson will get on the 'phone to the authors.

 

[toc]

Bill Clinton left the confident projection of $5.4 Trillion surplus in 10 years but GW and his gang converted it to $9T of Debt already in 7 odd years.

US needs a turnaround specialist in the white house.

 

[Hydroblunt]

Quote from toc:

Bill Clinton left the confident projection of $5.4 Trillion surplus in 10 years but GW and his gang converted it to $9T of Debt already in 7 odd years.

Stop being so naive. Clinton never balanced the budget. He was able to pull off an operational surplus, that's it. And that's only due to the tech boom, high salaries & corporate earnings.

What really happened is that he put the trillions of deficit in Medicare, Medicaid & Social Security into the tiny footnotes of the report. Yet all you people eat it up, like gullible 4 year olds.

USA is headed toward 3rd world status and there is nothing the current or future preselected administration, corporate powers & financial powers will do about it. Not because they can't, but because it's against their plans to do so.

 

[Alex_in_Oz]

The US needs a turnaround specialist in the WH. However it will undoubtedly vote for another republican fuckwit....again.

The US gets the government it deserves.

 

[Mvic]

What a weak paper, it is the same as me saying look at the similarity between the chart of the SPX in 19XX, 19XX and 19XX and note the similarities between those years and this year and then making a prediction based on that. Very weak. No normalizing was done for currency depreciation, no particular anayisis was done regarding global economic activity leading up to the crisis and even if the authors work is to be taken at face value at worst their study suggests a average yet protracted recession, certainly no doomsday scenario.

They mention in passing that policy can make a minor difference in the severity of the crisis but the fact is that if policy includes government policy beyond what the Fed and teh treaury can do the options are significant. We are not some 3rd world country stretched to its limits with no resources left to right the ship of state, we ae a very rich country depsite the debt with huge resources that we can apply given the political will. If things get bad enough that political will will surface and will make the necessary policy decisions that will usher in a new growth cycle.

Imagine an individual that is living large and throws at least 50% of his money away while taking on increasingly large amounts of cheap debt. When this individual comes to their senses they can turn around their fiscal situation fairly quickly just by not wasting their budget on unproductive spending. That is the US. Access to huge amounts of cheap $ and with enough current wasteful spending that if it were to stop and go to projects that helped the economy grow we would see a fairly swift turnaround.

Japan had a far worse RE crisis than the US and they would have come out of it fairly quickly if they had spent their money on useful projects instead of stadiums and theater houses for small towns that didn't need them.

One other thing that people forget, the financial innovations that got us in to trouble did so because they were abused and used without regard for propert risk assesment. Lesson learnt, these instruments are not going to die off though, they will be used more astutely in future and will help shorten the severity of the recession. Buffet is right, there is no credit crisis as such, look at everyone salivating to buy MSFT bonds for the Yahoo deal, the credit is there for quality issues. We need a correction in several asset classes to wash out the bad trades but in the mean time quality deals will still get done and that wil help tremedously.

The problem with all these gloom and doom scenarios is that they all tend to be static in their assumptions but that isn't how the world works. Fear and depressed prices create opportunity. The EM are awash with cash right now, somewhat unique in history of ricj countries in crisis. They will put a floor in that in previous crisis may not have been there. The falling $ will also help significantly in that regard both in the terms of lessening the burden of our debt on GDP and also in making the deflation of assets less severe than it may otherwise have been. If you throw a sensible pro growth US policy in to the mix then we could be looking at a very short recession.

The most important thing that needs to happen though is that the financial markets need to know where they stand in terms of the losses and counterparty risk. Until there is some real assement of that the cleaning out of the rot can not happen and that will stymie growth. Lets take our medicine and not drag it out as the longer the current crisis drags on the longer we will have to wait for the investment that we need to grow to come back in to the markets.

 

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Hydro,

while the numbers I got were from CNN article when new GW's budget was declared but as how would $5.4T surplus would be projected was still very questionable. Can you go in detail as to how was op surplus was projected.

'Not because they can't, but because it's against their plans to do so.'

what are their real plans? this is interesting..............traders need to take macro positions here!

 

[gnome]

Quote from toc:

Bill Clinton left the confident projection of $5.4 Trillion surplus in 10 years but GW and his gang converted it to $9T of Debt already in 7 odd years.

US needs a turnaround specialist in the white house.

Clinton was a TOTAL FARKIN' BULLSHITTER.. If you believe his line of CRAPOLA, you'd be doing us all a favor to get yourself LOBOTOMIZED!!

 

[9999]

Quote from toc:

Hydro,

................

what are their real plans? this is interesting..............traders need to take macro positions here!

Their plans are actually quite simple: the rich wants to become richer, & the powerful wants more power.
Simple as that.

 

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'Clinton was a TOTAL FARKIN' BULLSHITTER..'

please back your follies with facts.....thank you!