2008 November 12 Wednesday
Economic Depression Starting?

John Thain, chairman and CEO of Merrill Lynch, says the US economy is contracting like in 1929.

“Right now, the US economy is contracting very rapidly. We are looking at a per­iod of global slowdown,” he told investors. “This is not like 1987 or 1998 or 2001. The contraction going on is bigger than that. We will in fact look back to the 1929 period to see the kind of slow­down we’re seeing now.”

86 year old former Goldman Sachs chairman John Whitehead says he expects a depression.

"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

These men are not marginal fringe nutcases. But are they correct? Can't the US Federal Reserve reflate the economy by doing massive buying of financial assets?

The CEO of JPMorgan Chase expects the worst is yet to come.

Nov. 12 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the U.S. recession ``could be worse'' than the credit-market crisis that brought lending to a standstill.


Still, Dimon said there is reason for optimism about prospects for the economy. ``We're not running this company like we have a Great Depression,'' he said. JPMorgan continues to invest in businesses that benefit clients, including advisory work and raising money for corporations, he said.

But the chief of Britain's central bank only sees a downturn as bad as happened 30 or years ago.

The British economy faces its toughest year in almost three decades, the Governor of the Bank of England said yesterday. Mervyn King gave warning of “very difficult times” ahead and an even sharper recession than that of the early Nineties.

A survey of economists predicts a 4Q 2008 economic contraction rate of 3% followed by 1.5% contraction in 1Q 2009.

The implosion of credit markets last month will cause the economy to shrink at a 3 percent annual rate in the fourth quarter and decline at a 1.5 percent pace in the first three months of 2009, according to the median estimate of 59 economists surveyed Nov. 3 to Nov. 11. Following last quarter's 0.3 percent drop, the slump would be the longest since 1974-75.

``The economy fell off a cliff in October,'' said Richard Berner, co-head of global economics at Morgan Stanley in New York. ``We had a huge financial shock that intensified the credit crunch and triggered a sharp downturn.''

Goldman Sachs sees an even faster contraction: 3.5% followed by 2%.

The economy will shrink 3.5 percent in the fourth quarter and 2 percent in the first quarter, compared with previous estimates of 2 percent and 1 percent, Goldman economists led by Jan Hatzius wrote in a research note today. That would be the biggest back-to-back quarterly contraction since the start of the second year of Ronald Reagan's presidency.

Share |      By Randall Parker at 2008 November 12 07:54 PM  Economics Business Cycle

Ned said at November 13, 2008 6:16 AM:

The situation has gotten so bad that the US is now faced with the loss of its AAA credit rating:


Hang on, folks - the worst is yet to come. In a few years the Republicans will be thanking their lucky stars that they lost this election.

Ari said at November 13, 2008 6:56 AM:

The Obama depression is just getting started. Hang on to your hats, my friends. John Galt is the order of the day.

Sgt. Joe Friday said at November 13, 2008 7:34 AM:

Ned, Ari -

I agree with you, but let's face it the media narrative is going to be "the heroic, super-intelligent black president struggling against all odds to fix the crisis he was handed by his incompetent boob GOP predecessor." And a large percentage, maybe the majority of the public will buy it.

James Bowery said at November 13, 2008 10:48 AM:

And to make sure they "buy it", there will be government "jobs retraining programs" as well as "voluntary national service" where you will be able to find subsistence, but only if you exhibit the right attitudes on the issues of the day.

Stephen said at November 13, 2008 3:24 PM:

Sgt Joe, the narrative wouldn't be too far off the truth though. Surely there can't be too many people left who imagine that Obama's predecessor was anything but an 'incompetent boob'? Ditto re the GOP and its flawed philosophy of governance.

Bob Badour said at November 13, 2008 3:37 PM:


Your comments would carry more weight with me if the GOP had actually instituted its own philosophy of governance at any time in the past 20 years. Instead, the GOP mostly instituted a big government socialist philosophy of governance. McCain would have continued that perverse trend.

Sgt. Joe Friday said at November 13, 2008 6:11 PM:

Stephen -

No argument here about Bush. FWIW I do think he was way in over his head, and was, in fact, an incompetent boob in just about every important regard. Hell, he couldn't even get cutting taxes right.

Bob B. -

Completely correct. Strangely enough, Bush was portrayed as some kind of right wing kook, even though his ideological godfathers were LBJ amd Nixon. Obama won't be that different from Bush in any meaningful sense, with the possible exception of judicial appointments. He'll just look smooth and cool doing it, which Bush could never pull off.

agnostic said at November 15, 2008 2:28 PM:

The public won't buy it -- the data show that when the economy goes into the shitter, the public tends to vote against the incumbent party for president, whether they were Democrat or Republican. Doug Hibbs found this out.

Randall Parker said at November 16, 2008 8:56 AM:


See my February 2008 post Recession Assures Republican Presidential Defeat In 2008. This is the major reason I've been so bored with this election. Once Obama beat Hillary in an early primary the outcome was foreseeable. Throw in the credit crisis and the outcome was overdetermined.

If McCain had been willing to go Politically Incorrect and called Obama on Reverend Wright and the content of his books and comments about race the election could have been closer. But the economy loomed as the largest factor and McCain was too old anyway and people could sense he's got serious character flaws.

Engineer-Poet said at November 21, 2008 5:26 PM:

Quoth Sgt. Joe Friday:

the media narrative is going to be "the heroic, super-intelligent black president struggling against all odds to fix the crisis he was handed by his incompetent boob GOP predecessor."
I knew Bush was an incompetent boob (or a traitor) before the 2004 elections; his policies killing the PNGV and promoting gas-guzzlers (which enriched the very Saudi theocracy whose religious warriors killed 3000 Americans in NYC) constitute proof positive, no media spin required.

Whatever his other faults may be, Obama will reverse a lot of this.  Unfortunately, we've lost 8 precious years.

Ron Hulwiz said at December 17, 2008 3:39 PM:

This economic downturn is more serious than the media and most pundits claim. Its similarity to the Weimar Reublic's downfall is amazing, but no one is touching this issue; Mr. Madoff is only the tip of the iceburg? Hopefully President Obama and now Mary Shapiro can get control of this worsening scenario. Ron H., Jupiter, Florida

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