Lawrence Summers' cheery forecast: Tighten your seatbelts
I'm in Silicon Valley on Friday for the annual economic summit organized by Stanford University. Earlier in the morning, the government reported that the nonfarm payrolls registered the fastest rate of decline since 2003 and the markets predictably tanked. Good thing the Wall Street crowd didn't have a video link to the presentation by Havard professor (and ex-Harvard president and former Treasury Secretary) Lawrence Summers. Then they'd really bolt for the nearest bar.
Lawrence Summers at Stanford University.
(Credit: Charles Cooper)"I believe we are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation--and possibly, much longer than that," said Summers, adding that the country has "never been in more need of serious economic thinking than we are now."
The technology industry is on hand to listen. If Summers is right, the economy already is in recession--even though he complained about a "regrettable reluctance in Washington to recognize the 'R' word."
He spent a good part of his talk riffing about the dislocations in housing and credit markets, pointing out that while home prices in the U.S. are down 10 percent nationally, the decline may continue another 15 percent.
"The current estimates of mortgage losses are $400 billion," he said. "Those estimates are substantially optimistic."
That was just a warm-up to really depress the audience of heavy-hitters assembled here. He talked about a series of vicious cycles impacting credit and spending.
As a former cabinet member in the Clinton White House, Summers was careful not to season his words with too heavy a helping of politics. (He even said he admired Milton Friedman!). But as far as a fix, Summers said Congress and the president may need to follow up the recent financial stimulus with another.
"It's a grave mistake to believe in the self-equilibrating properties of economies in the face of large shocks," he said. "Markets balance fear and greed. And when fear takes over, the capacity for self-stabilization is not one that can be relied upon."
Charles Cooper has covered technology and business for more than 25 years. Before joining CNET News, he worked at the Associated Press, Computer & Software News, Computer Shopper, PC Week, and ZDNet. E-mail Charlie.
What no one talks about is the use of petroleum for fertilizer. Something like 98% of world agriculture production is now dependent on petroleum based fertilizers. Cheap petroleum has allowed us to push world agriculture production in orders of magnitude beyond natural levels around the world - supporting may times the numbers of people that the world can feed without petroleum based fertilizers. If we reached Peak Oil in 2004 as seems apparent from declining oil well out put reported from mature oil fields around the world - then it is just a matter of time until it fertilizer effects (or the lack thereof) on food out put is experienced in major ways - both in cost and in availability. While it isn't likely to be terribly sudden, it's panic effects might be a lot faster than many people think - especially if our leaders continue to ignore what has been known for the past 30 years - regarding over population (something else they don't want to talk about). Even if food production decline is slow as in the best case - its still going to cause massive starvation in many economically marginal societies around the world. Think how China will react once the world stops buying from them. Will they tolerate a return to their recent poverty? Maybe, but do you think they will just quietly starve? If there are just serious major regional short falls in food production, it will produce massive social unrest and violence affects to a degree never before experienced on a global basis. Nine eleven will pale in comparison. A starving person and or their leaders risk profile changes dramatically - as does their reasoning under starvation conditions. Poverty can be tolerated by industrialized people, but the starvation of industrial societies will result in extortion for food by violence - terrorism and war.
Something else that isn't being discussed by our leaders is that we don't have a successful economic system that works without significant population growth. Considering its over population that is the single cause of all of these problems - it appears more and more likely - that as a species we are going to quite literally screw ourselves and our civilization as we know it - to death. These Nobel prize winners should receive another prize... one for massive understatement.
Note please ... The word is Depression ... not Recession ... Again I say to you "Depression".
We observe these global events from an Isolated rural spot in Canada and have flashbacks to the years of the Hoover Administration circa 1929-1932 ... Frightening in similarity!
There is a quadratic equation involved here as all the moguls and magnates of the western economies are each quickly scrambling to protect private vested interests and securities before this coming catastrophic meltdown becomes a juggernaut of tragic consequence.. This is happening in a manner that has been presaged and triggered by slippage in all of economic society?s four base indicators (Demand, Supply, Support and Confidence).
Few leaders are aware of the confluence of indices that have started to come together and most of the fractal and ill-informed members of any administration are simply not prepared to deal with the fallout as an inane and cowardly sense of powerlessness to prevent the worst from happening coalesces into a more or less self-fulfilling prophecy.
A $300.00 handout from the Whitehouse/Congressis the 21st century equivalent of ?Let Them Eat Cake? ? Shame on all who allow this to pass without screaming out in protest!
We asked for this in our mad pursuit of material wants and devil take the hindmost attitudes that briefly exposed themselves in the dot com bubble burst of a few short years ago. Did we learn anything ? no!
Prepare for more than the worst possible case scenarios and you will still find yourself appalled at our capacity to underestimate the foolishness of whole systems to pave the way for our global well being to collapse into a quagmire that will be dolorous and heartrending for the masses.
The time for action was not at any specific point in time but rather is at multiple places and points in the global economy ?. Yes Mr. Friedman the world is indeed flat and the flood waters are rising quickly.
After the election, we are all going to get free health care, free housing, free food, etc. All we have to do is vote for the right (ultraliberal) Democrat.
On the other hand, grumpy people see the two major political parties as rival gangs of pirates fighting each other over who gets to divvy up the loot. Our job, of course, is to provide the loot and keep our mouths shut.
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by meh130
March 8, 2008 8:56 AM PST
- As Charlie Brown would say: Good Grief!
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(5 Comments)Let me get this straight. People buy more than they can afford using cheap credit in a world awash in cash, and somehow its the government's, the bank's, everyone's fault but the individual who signed for the loan?
Yougottabefrigginkiddingme!
The housing/mortgage meltdown will self-correct if we stay the hell out of the way. Yes it will hurt, yes it will take some time, yes it will drag down the economy for a while. This is like a stomach flu. The cramps hurt. The vomiting an diareahia make you miserable. But you have to just tough it out.
Mortgage requirements have tightened (thank goodness!). Rates have increased, as risks are greater. Housing prices have fallen. But when no customers apply for mortgages, market economics will cause the price of morgages (i.e., the interest rates) to fall. The price of houses will continue to fall. Eventually, economic equilibrium between supply and demand for both houses and mortages will occur, and prices for houses will increase, and mortage rates will increase and sync to monetary policy rather than the current crisis.
As for Cooper's bizzare comment about Summer's "even" admiring Milton Friedman, well, why would a world renouned economist like Summers not admire a world renouned economist like Friedman?
We really need more libertarian macroeconomists like Freidman today, especially in Friedman's expertise area of monetary policy and stabilization policy.
This meltdown is best thing to happen to the U.S. in a long time. People are learning the importance of saving money and living within their means. This will do for personal responsibilty what all the PSAs with that pig-head guy failed to do.