A worthwhile 11 minute video to watch -
a voice of reason in a sea of Kool Aid. Much of it echoes the thoughts I've outlined since day 1 in this blog. Some highlights:
- The U.S. economy is already in recession -- and may echo the 1930s, Nobel Laureate Joseph Stiglitz said Friday.
- "The big question is: how will the government respond?" said Stiglitz, in an interview with CNBC. Stiglitz, a Columbia University professor and 2001 winner of the Nobel prize, detailed his bleak outlook for the American economy. "This is going to be one of the worst economic downturns since the Great Depression," said Stiglitz.
- He explained that main cause of the current situation is historically unique—and thus is befuddling those charged with creating solutions.
- Other downturns were primarily caused by excesses in inventories or inflation; but this slowdown is due to the condition of "badly impaired" banks and financial entities, which are unwilling and/or unable to lend capital -- stymieing the very borrowers who usually drive the country back to vitality, Stiglitz said. And the Federal Reserve may have used up its ammunition -- and the faith investors and planners have put in it.
- "[The Fed] will be between a rock and hard place. And we're not over-worrying about credit. But [simultaneously], we need to start worrying about the real sector," he said.
- The housing downturn is an even worse economic factor than casual observers realized, Stiglitz said. He explained that during the real estate boom, Americans were able to withdraw billions of dollars from their home equity.
- "[But] with housing prices coming down, it's going to be difficult to do that anymore," he said -- drying up a spending source. And within that problem, still another complication: people typically spent the money they drew off their home equity on consumption, rather than investment -- garnering no return on the spending.
- "The savings rate as we go into the recession is zero. Which means [savings] will go up, " he said—decreasing consumer spending and weakening retail further.
- "The Bush Administration's response is too little, too late -- and very badly designed," he declared. (Bingo) "The president is telling people to go out and get jobs—and there are no jobs for them," he said.
