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Tuesday, September 15, 2009

so Much For Stimulus Package Dragging Us Out Of Recession

Financial headlines with "Economist warns of double-dip recession."

The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, according to one of the few mainstream economists who predicted the financial crisis.

Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

“Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s.

“The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

The comments from Mr White, who ran the economic department at the central banks’ bank from 1995 to 2008, carry weight because he was one of the few senior figures to predict the financial crisis in the years before it struck.

The Telegraph headlines with "US credit shrinks at Great Depression rate prompting fears of double-dip recession," and the sub header:

"Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation."

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Wasn't the highly publicized and touted $787 billion stimulus package Obama pushed through, supposed to, well, STIMULATE, our economy and bring us out of depression?

Has anyone considered what inflation is going to rise to in say... two years?

China has already offered up the idea of replacing the US dollar as the world's standard by proposing an alternative to it.


China, flexing some of its might as a growing economic power, has suggested overhauling the global monetary system by boosting the use of an alternative to the U.S. dollar.

As the largest holder of U.S. debt, China has expressed concern about its investment if the dollar should collapse.

On Monday the governor of the People's Bank of China proposed expanded use of an alternative -- the International Monetary Fund's SDR, or Special Drawing Right, an accounting unit based on the euro, Japanese yen, pound sterling and U.S. dollar.

"Special consideration should be given to giving the SDR a greater role," Zhou Xiaochuan said Monday.

Wider use of SDRs would ease dependence on any one currency and limit the effects of a single country's fiscal policies, Zhou said.

For Americans, that could mean higher interest rates for loans of all types, including mortgages and credit cards.

More from Wall Street Journal:

This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations.

Obama has already quadrupled the deficit projections up to $9 trillion and he and the Democrats continue to propose more tax and spend policies and now they want to pass Obamacare with another trillion dollar price tag.

Things are about to get a whole lot worse.

The bottom line here should be very simple, you cannot spend what you do not have and our politicians need to stop doing it.