the visible hand

it is the theory which decides what can be observed – einstein

The mother of all meltdowns

Posted by ecoshift on February 21, 2008

The fact that these types of scenarios are seriously considered as a plausible outcome of the current housing crisis and credit crunch is significant. Pay attention. This will hit Humboldt County hard. Development and wood products sales are a significant portion of our direct economy. Property taxes are also the primary source of revenue for many of the state and county funded jobs in our area — another very significant portion of the local economy. We will likely need to tighten our belts, both collectively and individually, as this recession comes into full view.  Read all twelve steps.

I’m quite appreciative of Mr. Wolf’s review of the Professor’s commentary as the full text of the professor’s blog entries are no longer available to the public. Subscriptions to the professor’s website run into the high four digits even at the discounted rate. So thanks again to Mr. Wolf…

America’s economy risks mother of all meltdowns
| | The Economists’ Forum
| Martin Wolf | Feb 20th, 2008

I would tell audiences that we were facing not a bubble but a froth – lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.” – Alan Greenspan, The Age of Turbulence.

That used to be Mr Greenspan’s view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor.

Recently, Professor Roubini’s scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is “a rising probability of a ‘catastrophic’ financial and economic outcome”**. The characteristics of this scenario are, he argues: “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.”

Prof Roubini is even fonder of lists than I am. Here are his 12 – yes, 12 – steps to financial disaster.

And the 13th step would be….??


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