Fears of A Real Crash

I'd like to laugh at the Republican growing pains from dealing with the minority and the near-universal opprobrium for their policies, and I'm sure I will in a future post. Maybe even the next post. But we're seeing the consequences of those policies resulting in a seemingly unending death spiral, a global death spiral, and I'm afraid schadenfreude can't even cheer me up.

A year ago Roubini was forecasting an 18-month recession with a U-shaped recovery; now, he's now expecting the downturn to last at least 24 months and possibly 36-months. He also sees rising risks of a Japanese-style L-shaped stagnation, i.e. a prolonged period with little or no economic growth.

"I was one of most bearish people [but] the economy has surprised the bears on the downside," says Roubini of NYU's Stern School and RGE Monitor. "What's happening in the world now is scary."

Indeed, while the U.S. economy contracted 6.2% in the fourth-quarter, Roubini's main concern is economic activity in much of the rest of the world is in much worse shape. And while he is often critical of U.S. policymakers - including over the stimulus package, Fed policy and bank bailouts - Roubini says "the rest of the world is way behind the curve," in terms of doing the "right things" to confront the worst economic crisis since the 1930s.

It's the global component to this that has me extremely worried, aside from the Geithner/Summers effort to pay off the banksters. The EU is stiffing Eastern Europe as that region bears some of the toughest burdens of the financial crisis. Case-by-case support will simply staunch the bleeding without saving the patient. The Hungarian Prime Minister called it "a new Iron Curtain" to divide Europe. Before long, what is currently happening in Ukraine - where tent cities on the main square bear signs saying "Everyone Out" and many cities are WITHOUT HEAT AND WATER - could set a depressing standard. The European Central Banker seems like he's in a dreamworld, predicting that there's no threat of deflation against all evidence. There's a report that European banks have $24 TRILLION in toxic assets on their balance sheets. That is a bona fide crisis in global debt that is destroying entire nations. Put it this way, when the lender of last resort is increasingly the Mafia - yes, the actual Mafia - there's a serious problem. Basically, there is an increase in savings to manage the debt, and it's causing investment to plunge. And somewhere in the world, one of the richer countries has to pick up the slack for all this shortfall in demand, and nobody is doing it with the speed or decisiveness required.

It's quite scary, and our brainiacs Tim Geithner and Larry Summers aren't helping at all. In an article designed by the leakers to pin the blame of any failure on them, their policies on the financial crisis are displayed:

Treasury Secretary Timothy F. Geithner and National Economic Council Chair Lawrence H. Summers pushed for weeks for a strict cap on the nation's debt. And while other advisers argued that the administration needed a more flexible spending plan, they could not deter the president from ultimately agreeing with the views promoted by the partnership of Geithner and Summers [...]

Geithner and Summers are also taking the lead in shaping the Obama administration policies for creating millions of jobs through the economic stimulus plan, rescuing the banking system, revitalizing the housing market, restructuring the auto industry and overhauling financial regulation.

Obama's decision to make Summers and Geithner the key players in such a wide-ranging agenda has left some within the government concerned that they will be unable to handle so many complex issues at once. Geithner already was widely criticized on Wall Street for being too vague when he announced the financial rescue package last month.

The reviews are in on this dynamic duo, and they are not good. Not good at all. As Paul Krugman says:

The sickening feeling of drift — the sense that policymakers are refusing to face hard facts, and are dithering while the world economy burns — just keeps getting stronger.

I may throw up.