Is This The Start Of A Great Depression? What Is Needed Now

[Better Believe It]

Is this the start of another Great Depression?
By Barry Eichengreen
Special to CNN
October 9, 2008

* Story Highlights
* Eichengreen: Serious mistakes were made by policy makers in Depression
* Today's leaders know the lessons of the Depression, he says
* Still, events are rapidly overtaking the resources of the central banks, he says
* Eichengreen: The problem can't wait until Inauguration Day to be solved

The first thing that made the Great Depression great, of course, was the Fed's failure to act. It basically stood by as the banking system and the economy collapsed around it. This time, in contrast, the Fed can hardly be criticized for inaction. Not only has it cut rates, but it has rolled out one new unprecedented initiative after another.

U.S. Treasury bill rates have essentially fallen to zero, and the Fed's policy interest rates are only slightly above that level. Central banks are out of ammunition. This is no longer a problem they can solve by themselves.

What is needed now is Treasury action to address what has morphed into a global banking crisis. Between 1930 and 1933, not just the U.S. but also Europe and Latin America experienced rolling banking crises.

G7 leaders, when they meet in Washington at the end of this week, need to explain exactly how they will address this aspect of the problem. They need to commit money to recapitalizing their banking systems -- now, and not next week.

The U.K., which has just announced a $50 billion plan for bank recapitalization, has shown how this can be done in a matter of days. But a coordinated initiative will require the U.S. to put up a considerably larger sum.

My recommendation would be to abandon the idea of reverse auctions for toxic assets and instead use the $700 billion of the recently passed rescue plan for bank recapitalization. Although the Great Depression started in 1929, it took until 1933 for American leaders to grasp this nettle and recapitalize the banks. We can't afford to wait for years this time around.

Please read the entire article at:

http://www.cnn.com/2008/POLITICS/10/09/eichengreen.depression/index.html

[Jackpine Radical]

1. Hey, guess fucken what! The generals of WWII had all figured out how to keep

WWI from ever happening again. And it didn't.

What happened instead was much worse because they were facing new situations about which they had no clue.

[fasttense]

2. Hmm, hmm, - the 2nd Republicon Great Depression. n/t

[Warpy]

3. Perhaps all this will happen

Remember, Obama is an academic and presumably knows a lot of this stuff.

We're just lucky it's happening now instead of when the bubble started to pop in 2005.