Tuesday, July 29, 2008

Roubini: severe recession and financial and banking crisis is now unavoidable


Back in February 2008 Roubini claimed that:

there is now a rising probability of a “catastrophic” financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown....

... “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant
probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.

Well now Roubini is saying that

A severe recession and financial and banking crisis is unavoidable.... a financial meltdown - that I described in my February paper - is now underway and cannot be stopped.

NB. Henry George was correct. It's all about (kapitalized) land value and lending money using (high) land values as collateral. When land values go down after the inevitable and predictable boom, the financial system is bust.

This one is a real doozy because of the triumph of neo-liberalism: the socialism and new-deal hating 'free market' capitalist ideology which has seen the lethal trifecta of privatization, deregulation, and (property) tax cuts combined with the thoroughly ruthless and determined manner in which Wall St has created as much land-value based debt as rapidly as possible, securitized it, and flogged it all over the world as 'toxic paper', regardless of consequences.

According to some commentators the entire US banking system is insolvent.


LVTfan said...

You might find the boom-bust cycle chart at http://www.wealthandwant.com/themes/Boom_Bust_Cycles.html
of interest. It comes from Homer Hoyt's 1933 book ... and speaks to things we see in our current ups and downs.

The website from which it comes has a Georgist perspective.

Bernard said...

Thanks for the link, I haven't seen that image before.

I do have in mind the George/Hoyt/Harrison 18yr cycle of land values and business recessions. It seems to be confirmed (yet again) - this time maybe the biggest and most spectacular confirmation ever, although the full magnitude of the land boom/bust and resulting recession/depression is yet to be witnessed.

I do find it striking (and sadly characteristic of the georgist movement) that while there are a number of informative bloggers and commentators out there covering the 'subprime' crisis there is almost no one from a Georgist perspective. Michael Hudson is virtually the only one with his excellent articles on the counterpunch.org website.