[Mister.levitra]

That's silly Kid. The Nazis used those in concentration camps as free labor.

There's no such thing as free labor. Workers have to be fed and housed. Prisoners also need to be watched, and that takes extra labor. Concentration camps aren't cheap and they also have to be guarded. Also there were a lot of prisoners in the camps who were capable of other work that would have helped the cause much more.

Slaves tend to help a bit. Free productive workers help much more.
It isn't just the Jews, but all the folks who disagreed. There is no room for dissent in the planned economic systems after all. Not if you want to become the next Stalin or Hitler. This doesn't really make sense. Of course Hitler would send all of his enemies to camps, but that doesn't mean he had to.

[dafodilkemmy]

http://www.theglobeandmail.com/servl...drecovery/home
'There will be blood'
Harvard economic historian Niall Ferguson predicts prolonged financial hardship, even civil war, before the ‘Great Recession' ends

HEATHER SCOFFIELD

Globe and Mail Update

February 23, 2009 at 6:45 PM EST

Harvard author and financial crisis guru Niall Ferguson has landed with a thud in Ottawa, spreading messages that could make even the most confident policy makers squirm.

The global crisis is far from over, has only just begun, and Canada is no exception, Mr. Ferguson said in an interview before delivering a presentation to public-policy think tank, Canada 2020.

Policy makers and forecasters who see a recovery next year are probably lying to boost public confidence, he said. And the crisis will eventually provoke political conflict, albeit not on the scale of a world war, but violent all the same.

“There will be blood.”

The Buy America penchant pushed by the U.S. Congress in passing the recent stimulus bill was only the tip of the iceberg.

Abu Dhabi buying Nova Chemicals at bargain-basement prices on Monday is a sign of things to come, with financial power quickly being transferred over to the world's creditors – namely sovereign wealth funds – and away from the world's debtors.

And much of today's mess is the fault of central bankers who targeted consumer-price inflation but purposefully turned a blind eye to asset inflation.

The Laurence A. Tisch professor of history at Harvard University, and author of The Ascent of Money, A Financial History of the World, sat down with The Globe and Mail's economics reporter, Heather Scoffield.

Heather Scoffield: Canadian leaders frequently argue that Canada is in better financial shape than elsewhere in the world, and therefore should fare better during this crisis. Do you agree?

Niall Ferguson: Canada is [considered] a winner because its banks are less leveraged, bank regulation here has been tighter, because its housing market hasn't been in a bubble quite the same way. It's tempting to conclude from that ... that Canada will be less hard hit in the crisis than the United States. But that is unfortunately wrong. Because this is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the U.S.”

“It suggests virtue is its own reward. You don't get any reward beyond the self-satisfaction of having been virtuous. This is a crisis of globalization. Therefore, the more an economy depends on the global system, the harder it hurts. Canada is not finding the worst. Asian economies are going to be really slammed this year. But it's an unfair world. The U.S. won't be as badly affected as most countries.”

Heather Scoffield: Is the U.S. able to escape with less pain because it has more resources to throw at its problems?

Niall Ferguson: “Partly because they can throw so much at it, and they can do it at a lower cost than anybody else, because the U.S. retains the safe-haven status, which makes the world so unfair. Here is the world's biggest economy, which gave us subprime mortgages, rampant securitization, the collateralized debt obligation, Lehmann Brothers, Merrill Lynch. It is, in a sense, the fons et origo of this crisis. And yet, because it retains safe-haven status, in a global crisis, investors want to increase their exposure to the U.S. Hence, the dollar rally. Hence 10-year Treasuries down below 3 per cent yields. It's almost paradoxical that an American crisis ... reinforces the status of the United States as a safe haven.”

Heather Scoffield: Surely that safe-haven status would be revoked if China loses faith in the U.S. ability to finance its debt?

Niall Ferguson: As you know, Chimerica – the fusion of China and America – is one of my big ideas. It's really the key to how the global financial system works, and has been now for about a decade. At the end of The Ascent of Money, I speculate about whether or not that relationship will survive. If it breaks down, then all bets are off, for the U.S. and indeed for Asia. I think that's really the key point. Both sides stand to lose from a breakdown of Chimerica, which is why both sides are affirming a commitment to it.”

“It's very interesting that the Chinese in the last week were saying such soothing things around the [Secretary of State Hillary] Clinton visit. This was only days after Treasury Secretary Tim Geithner used the dreaded ‘m' word – currency manipulation.

Heather Scoffield: Why would the U.S. administration poke a stick in China's eye like that?

Niall Ferguson: “You obviously have to recognize that Democrats have been more hawkish on China for some time, than the Republicans ... But I think Tim Geithner is smart enough to know that this is a very dangerous game to play and I would be very surprised if you heard that word again pass his lips.”

Heather Scoffield: Did the Clinton visit improve the China-U.S. relationship?

Niall Ferguson: It looks like it....The line is very clear from China. They've consistently made their position clear. They want the status quo. They do not want this thing to break down. They were kind of appalled when Geithner said the ‘m' word. And they took full advantage of Hillary Clinton's visit to smooth ruffled feathers and restate their commitment. It's a very good bilateral relation. That bilateral will is important here. The Chinese believe in Chimerica maybe even more than Americans do.

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Page 1 of 5

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“They have nowhere else to go. They have no other strategy that they can adopt in time to cushion the blow. Their exports are contracting at a terrifying speed. They want at all costs to avoid any kind of big shift in policy. They want to keep, as far as possible, the U.S. importing Chinese goods. They want to keep currencies stable. They are still buying dollars … At least officially, Chimerica is intact. But I stress ‘officially' because there's considerable public disquiet.”

“This is a crisis of globalizaiton that is destroying global trade. This poses the biggest challenge that the Chinese administration has faced since they embarked on reforms 30 years ago.

Heather Scoffield: Will globalization survive this crisis?

Niall Ferguson: It's a question that's well worth asking. Because when you look at the way trade has collapsed in the world in the last quarter of 2008 – countries like Taiwan saw their exports fall 45 per cent – that is a depression-style contraction, and we're in quite early stages of the game at this point. This is before the shock has really played out politically. Before protectionist slogans have really established themselves in the public debate. Buy America is the beginning of something I think we'll see a lot more of. So I think there's a real danger that globalization could unravel.

Part of the point I've been making for years is that it's a fragile system. It broke down once before. The last time we globalized the world economy this way, pre-1914, it only took a war to cause the whole thing to come crashing down. Now we're showing that we can do it without a war. You can cause globalization to disintegrate just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold.”

Heather Scoffield: Is a violent resolution to this crisis inevitable?

Niall Ferguson: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics. That seems a less certain outcome. We've already talked about why China and the United States are in an embrace they don't dare end. If Russia is looking for trouble the way Mr. Putin seems to be, I still have some doubt as to whether it can really make this trouble, because of the weakness of the Russian economy. It's hard to imagine Russia invading Ukraine without weakening its economic plight. They're desperately trying to prevent the ruble from falling off a cliff. They're spending all their reserves to prop it up. It's hardly going to help if they do another Georgia.”

“I was more struck Putin's bluster than his potential to bite, when he spoke at Davos. But he made a really good point, which I keep coming back to. In his speech, he said crises like this will encourage governments to engage in foreign policy aggression. I don't think he was talking about himself, but he might have been. It's true, one of the things historically that we see, and also when we go back to 30s, but also to the depressions 1870s and 19980s, weak regimes will often resort to a more aggressive foreign policy, to try to bolster their position. It's legitimacy that you can gain without economic disparity – playing the nationalist card. I wouldn't be surprised to see some of that in the year ahead.

It's just that I don't see it producing anything comparable with 1914 or 1939. It's kind of hard to envisage a world war. Even when most pessimistic, I struggle to see how that would work, because the U.S., for all its difficulties in the financial world, is so overwhelmingly dominant in the military world.”

Heather Scoffield: You speak about the crisis being in its early days, but most policy makers and the International Monetary Fund are predicting a quick end to it. Where do you differ with them?

Niall Ferguson: “I do think they're wrong. I think the IMF has been consistently wrong in its projections year after year. Most projections are wrong, because they're based on models that don't really correspond to the real world. If anything good comes of crisis, I hope it will be to discredit these ridiculous models that people rely on, and a return to something more like a historical understanding about the way the world works.”

“I mean most of these models, including, I'm told, the one that policy makers here use, don't really have enough data to be illuminating … You're going to end up assuming that this recession is going to end up like other recessions, and the other recessions didn't last that long, so this one won't last so long. But of course this isn't a recession. This is something really quite different in character from anything we've experienced in the postwar era. That's why these projections give positive numbers for 2010. That's the default setting. And it just seems to me ostrich-like, to bury one's head in the sand and assume this has to end this year because, well, that's what recessions do.

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Page 2 of 5

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“It's obvious, surely we know by now, that this is something quite different. It's a crisis of excessive debt, the deleveraging process has barely begun, the U.S. consumers are not going to suddenly bounce back and hit the shopping malls just because they get a tax cut. The savings rate is going to continue to rise. These processes have tremendous momentum that quite clearly differentiates them from anything that we've seen, including the early 80s, including 73, 74, 75. Those big crises, the ones that we have lived through, were bad. But seems certain to be deeper, and more protracted.”

Heather Scoffield: Forecasters say they can adjust their projections as things change, but households, companies and governments are basing their decisions today on what the experts tell them to expect in the future. So how should decisions be made if the forecasts are wrong?

Niall Ferguson: “One possibility is that they don't believe these numbers either. They feel that it's good for morale. The truth about the crisis is that it is in large measure psychological. We're not dealing here with mathematics. We're not dealing here with human beings as calculating machines. We're dealing with real people whose emotions influence their individual decisions, and the swing from greed to fear is a very spectacular thing when it happens on this scale.

“One possibility is that policy makers are lying in order to encourage people and prevent depression from become a self-fulfilling psychological conditions. That's why it's called a depression … Maybe they don't really believe this, but they're saying it in order to cheer people up, and if they're sufficiently consistent, perhaps people will start to believe it, and then it will magically happen.”

“The other way of looking at that is to say every time a politician uses a word like ‘catastrophe' or ‘depression' to pressurize legislators into passing a stimulus package, for example, the signal goes out to the public that this is bad. And it gets worse. That's one of the interesting things that both President Bush and President Obama have done. Bush used that wonderful phrase, “this sucker's going down.” Obama talks about catastrophe at the critical moment when he wanted Congress to pass the package. It reminds me of a wonderful headline that the Onion had last year, in about October. The headline was, Bush calls for panic. I love it because it completely called the situation. There he was calling for panic ... to make people come out of denial. I've been talking a while about this being the Great Repression. It took ages, ages, for people to realize this thing had fallen apart.

“August, 2007, was when this crisis began. And if you were really watching the markets carefully, April is when it began, when the various hedge funds started to hemorrhage. The stock markets carried on until October of that year. And in many ways, consumer behaviour in the U.S. did not change until the third quarter of 2008. So there was a massive denial problem. It was like Wile E. Coyote running off a cliff, and they'd run off a cliff and they didn't look down so they didn't start falling. As soon as people realized it was bad, the behaviour switched. Now, people have to try to unscare them before this thing becomes a self-perpetuating downward spiral. I think that's why you have to say ‘growth will return in 2010' with your fingers crossed behind your back.”

Heather Scoffield: Will property ownership continue to be central to our economy's functioning?

Niall Ferguson: Property ownership is something that our societies, particularly English-speaking societies, seem to be drawn towards. The notion that the majority of people should own their own homes dated from the 30s. It didn't really become a reality until the 50s. We've sort of pushed the home ownership rate up to what seems to be its maximum, and beyond. It will clearly come down. The lesson of the subprime crisis is that you shouldn't give mortgages to people who can't afford them. Duh …

I don't think we're going to see a radical shift back to the rental society of the pre-Second World War era. That sort of exists in Germany. Germany has had none of this. German households are less indebted now than they were 20 years ago. The property ownership rate, if anything, has been completely stable. Why the English-speaking world has this fixation is kind of interesting and hard to explain. That Englishman home-is-his-castle mentality. We privilege this asset class. And in the U.S., the tax code privileges this asset class to take out mortgages and invest in property. I think that's a mistake. I'd like to see us at least achieve fiscal neutrality, so that different kinds of investments are treated the same. But even if we do that, Canada doesn't have mortgage interest relief, and the home ownership rate is the same as the U.S.”

Continued on Page 4…

Page 3 of 5

[pepBarihepe]

I'm not sure if I should be cheered up by his aversion to the word 'depression,' or be depressed that denial is such a strong force.

[ronaldasten]

There was a time when if you said the United States was going to suffer a lost decade like Japan did in the 1990s, everybody would have said you were a mad pessimist. That begins to look like quite a good scenario. And I think it's a realistic scenario. So he agrees with Krugman.

-Arrian

[AndyColemants]

As you know, Chimerica – the fusion of China and America

Now all we need is the lion head.

[Kiariitf]

You need to pay more attention to leading indicators rather than lagging ones.

[PRengine]

You need to pay more attention to leading indicators rather than lagging ones.

Which leading indicators make you hopeful?

[Aztegjpl]

One, this isn't just about the US.

Two,
http://www.conference-board.org/econ...tput.cfm?cid=1
Although the LEI has risen during the past two months, it is too soon to say the contraction in the LEI that began in July 2007 is coming to an end. The LEI has continued to decline over a six-month period in the second half of 2008, with continued widespread weakness among its components. The primary sources of strength in the LEI in recent months have been the consistent and large contributions from inflation-adjusted money supply and the interest rate spread, and consumer expectations have only provided a weak positive contribution. At the same time, the CEI remains on a downtrend that began in November 2007, and the decline in the index has accelerated in recent months. All in all, the recent behavior of the composite economic indexes suggests that the economy will continue to be in recession in the near term.

An American cold has given most others pneumonia. That started it. Where it ends...

[giftplas]

You can believe whatever you want; none of us can predict the future. I'm just pointing out that your fears of depression have no basis in economic fact.

That's an interesting statement.

Can you point me to some of these 'facts?'

http://online.wsj.com/article/SB123574078772194361.html
FEBRUARY 28, 2009 Economy in Worst Fall Since '82
Output Sank 6.2% Last Quarter; Plunging Trade, Investment Signal Trouble Ahead

By CONOR DOUGHERTY and KELLY EVANS

The U.S. economy deteriorated far more than previously thought in the fourth quarter, according to new revisions of government data, casting fresh doubt about the chances of a recovery this year.

With falloffs in consumer spending and exports, gross domestic product declined at a 6.2% annual rate in the fourth quarter of 2008, according to a Commerce Department report Friday. The agency's first estimate for GDP, reported in January, was for a 3.8% decline.

The more recent figure -- which represents the steepest dropoff since the depths of the 1982 recession -- raises pessimism among economists. Until recently, many had been hoping for a rebound in 2009 and now sound downbeat about the remainder of this year.

Besides the revised GDP, economic indicators for the first two months of the year point to a deepening recession -- and the prospect of a dismal first quarter, too. Every week in February, more than 600,000 people filed new claims for unemployment insurance, and the unemployment rate rose to 7.6% in January, from 7.2% in December.

"The first quarter is going to be bad," said Christina Romer, chairwoman of the Council of Economic Advisers, at an economics gathering Friday sponsored by the University of Chicago and Brandeis University. She told the audience that Obama administration officials have been watching with deepening concern what's been going on around the world.

The U.S. has been hurt by the synchronized nature of the current global downturn. Exports declined at a 24% annual rate, compared with the 20% rate previously reported. Meanwhile, it appears the world's other economies truly fell apart in the fourth quarter. India reported on Friday its fourth-quarter GDP growth was lower than expected, while Japan said last week its GDP had contracted more than 12%. Growth in both Europe and the U.K. fell at an identical 5.9% annual rate. These numbers mean the U.S. can't lean on its trading partners to buy goods and help buoy business activity.

Private investment, which encompasses everything from business spending to homebuilding, fell at a 21% annual rate in the fourth quarter. That portends poorly for the first quarter of this year since one company's cutbacks in spending can lead another to do the same.

In Essex Junction, Vt., Bradley Aldrich, the president of an engineering firm, says he is putting off big purchases until he gets a clearer idea of where the economy is headed. His company, Forcier Aldrich & Associates Inc., spends up to $40,000 a year on various equipment. Mr. Aldrich has particular interest in a $30,000 software system that would allow the firm to hold a vast database of blueprints and other documents. He guesses it would save up to $5,000 a year in paper costs.

"It makes sense to do it, but with the economy the way it is right now we're reluctant to make the investment," says Mr. Aldrich.

Still, Ms. Romer strikes an optimistic tone about the prospects for a turnaround in the economy later this year. The Obama administration Thursday offered economic projections in its budget that were rosier than most private-sector forecasts. Defending the projections, Ms. Romer said a turnaround is likely this year as the federal fiscal stimulus package works its way through the economy.

Some economists have a much dimmer view, arguing the best the stimulus can do is prevent a recession from turning into depression. "There's no way we are going to be able to avert a deep and long recession," says Joshua Shapiro, chief U.S. economist at research firm MFR, Inc. Conrad DeQuadros, senior economist at RDQ Economics in New York, forecasts "a fairly lackluster recovery in 2010," and projects that unemployment will graze double digits from its current 7.6%.

Federal Reserve officials in recent days have tempered their call for an economic rebound this year, saying they still expect one, but it depends critically on the success of officials in repairing the damaged financial system. "Below-potential growth is likely to persist until financial markets and financial institutions can resume more normal functioning," Eric Rosengren, president of the Federal Reserve Bank of Boston said at the Friday economics conference.

Nearly half of the revision was due to inventory levels that turned out to be lower than originally thought -- meaning companies ordered fewer goods in anticipation of weak customer demand. Inventory levels were first reported to add about 1.3 percentage points to growth in the fourth quarter, but that was revised down to just a 0.16 percentage-point boost. The silver lining, however, is that companies may rebuild stocks sometime in the first part of this year, possibly giving a bigger boost than anticipated to growth.

Retailers in particular weathered a brutal fourth quarter, as the loss of consumer spending hit right during their crucial holiday season. The Commerce Department's GDP report showed that consumer spending on non-durable goods, such as food and clothing, declined at a 9.2% annual rate. That compares to the previously-reported figure of 7.1%. With an abysmal finish to 2008, retailers responded with layoffs, store closings and cost-cuts that stand to further weaken the U.S. economy.

Saks Inc., for example, expects sales in stores open at least a year to drop by double-digits this year, as chief executive Stephen I. Sadove this week called the current landscape "perhaps the most challenging the company has faced in its 84-year history." Leather-goods retailer Coach Inc. laid off 150 employees, or about 10% of its U.S. corporate staff. It is also reducing prices and paring back new-store openings this year.

Even lower-priced chains are reeling, and are moving quickly to adjust inventories to match customer demand. Kohl's Corp. said Thursday its fourth-quarter net income dropped 18%, and chief executive Kevin Mansell said the company is "planning conservatively in our sales expectations, inventory levels, and expenses" for 2009.

Federal spending helped blunt the GDP decline, but was offset by a fall in state and local spending. Falling sales, income and property taxes have saddled cities and states with the worst budget gaps in a generation, forcing them to lay off employees and make cuts in normally untouchable programs like schools and police forces.

—Jon Hilsenrath contributed to this article.
Write to Conor Dougherty at conor.dougherty@wsj.com and Kelly Evans at kelly.evans@wsj.com

[JeorgeNoxeref]

You think the worst fall in quarterly GDP since 1982 is a sign that we're in a depression?



While I find your baseless insistence that we're in a depression to be funny, it would be even funnier if the credulity of people like you wasn't being used to sell the biggest expansion in the U.S. federal government since WWII.

http://online.wsj.com/article/SB123569611695588763.html

We are so ****ed.

Read the thread.

It is not just the US, but feel free to continue thinking it is all about you. You're more relevant to yourself that way.

On your last sentiment, I agree somewhat. However, you should stop being so pessimistic. You're not much more ****ed than you would have been, but we can agree that you are ****ed.

Now, if only we can split the hairs as to what ****ed means exactly. You say recession, for like, a while, maybe. I say recession with largish drop in GDP, with high unemployment that persists over a long period of time is a depression. And it will be that way in a great many places, maybe not in your apartment though. And again, it isn't all about you.

Oh, and we're not 'in it' yet, to get technical; although maybe some people are. However, more of we are in this handbasket, and we are wondering at the increasing downward velocity, and we are asking ourselves where it is headed and how fast.

I think you are foolish to think the train has a stop nearby. You think I'm a fool for having gone out of my way to prepare for a longer journey.

Time will tell who is the larger fool.

[Accor$314]

Suit yourself.

I hope you make a nice profit on your Citi shares.

[beth]

We all have a lot to learn.

[Amirmsheesk]

I'm not having to look for this stuff. It's popping up all over the place.

Of course, I'm a catastrophist, and students are now the experts.

http://www.dailyfinance.com/2009/02/...-death-of-equ/
Bill Gross, the $747 billion bond man, declares the death of equities

Peter Cohan
Feb 26th 2009 at 10:00AM

Filed under: Economy, People, Investing

Stocks are dead for the rest of your life. That's the gist of my exclusive interview with the head of PIMCO Total Return -- the biggest bond fund you've never heard of. But you should know PIMCO because its chief, Bill Gross, is one of the world's most powerful bond investors.

Last September it looked like he was "helping" the U.S. government by advising it to put Fannie Mae and Freddie Mac into conservatorship. While this wiped out stockholders, Gross's Fannie/Freddie bonds were boosted by the U.S.'s decision. In addition to running a $747 billion asset management firm, Gross's PIMCO advises the U.S. on its $251 billion commercial paper program and its $500 billion fund to buy mortgage-backed securities. Gross shared his economic outlook with me yesterday in an exclusive interview -- and he's not optimistic.

I've never met Gross so it came as a complete shock when I received an e-mail from him yesterday morning. I was quoted in the latest issue of Fortune suggesting that he might be too powerful for the U.S.'s good. How so? Because he's such a big buyer of government debt -- which it's selling in huge quantities to finance various bailouts -- that he could use his leverage to threaten to walk away unless the U.S. sells to PIMCO at a favorable price.

On Monday I gave a TV interview in which I suggested that the U.S. might consider avoiding this potential problem by giving PIMCO's advisory contracts to another firm that does not have the potential conflict between buying U.S. debt and advising the government.

Gross saw the interview and e-mailed me. I replied by telling him that I had some questions about PIMCO and his views on economic prospects. I found his answers informative and insightful and he agreed to let me post on his economic outlook which is very grim for those who believe that stocks outperform bonds. In Gross's view, the current economic contraction is killing the animal spirits that drive risk taking and that's contributing to the death of equity capitalism as we've come to know it.

As Gross told me, "things will never be the same. Risk taking has been destroyed and any animal spirits must come from Washington. Global growth rates -- low, low, low -- asset classes will be readjusted for that outlook. That is -- stocks will be more of a subordinated income vehicle as opposed to a 'stocks for the long run' growth vehicle."

This argument is great for bond fund managers such as Gross since it would tend to drive people out of stocks and into bonds. But his point about stocks as a subordinated income vehicle is interesting. If I understand him correctly, he views stocks as the bottom of the liquidation hierarchy -- meaning that if a firm files for bankruptcy, all the other stakeholders -- such as bondholders, lenders, and preferred stock holders -- get their money before the common shareholders see a dime.

This is why so many common shareholders are getting wiped out. And in Gross's view, growth prospects are so dim that there is no point in owning stocks since common stock investors will not benefit when there's no economic growth. Moreover, they'll be last in line for any dividends that might be available.

Meanwhile, Gross has an interesting analysis of how we got into this mess. He attributes it to too much borrowing, weak regulation and greed. He also thinks that the U.S. is going to have to come up with as much as $5 trillion to fill the capital hole in the banking system.

As Gross said, "The cause of the current situation was too much leverage leading to over consumption which was facilitated by lax regulation and good ol' fashioned greed. Human nature will never change but our institutions will. Not sure policymakers understand what needs to be done -- there still is a $4 trillion to $5 trillion capital hole that needs to be filled but politics may inhibit necessary action. Bernanke and Co. get it though and have more freedom and flexibility -- they are independent -- for now."

These are sobering thoughts from one of America's most powerful financial minds. My hunch is that over the medium- to long-run, we'll revive capitalism through venture-backed technology innovation. But I am not sure how soon that will happen. Meanwhile, what do you think of Gross's comments? Do they make you want to sell stocks?

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

[iuopyra]

The CRTC requires me to give equal time to opposing points of view. I'll bet Drake complained.

http://business.theglobeandmail.com/...l_gam_mostview
Divas of doom find their fame in peddling the direst of fortunes to pessimistic masses

Bleak is chic as demand grows for dark oracles of blood-filled streets and 'zombie banks'

IAN BROWN
From Saturday's Globe and Mail
February 27, 2009 at 11:50 PM EST

The financial headlines can make your eyeballs bleed. William Burroughs, the great Beat writer, could have fashioned one of his cut-up poems out of a single day's fare:

Markets tumble as bank fears linger
Will invoking the Great Depression bring it on?
Manulife needs to confront its reality
There will be blood ...

The boom in doom reached a new peak Tuesday. That was the day Harvard financial historian Niall Ferguson declared, in this newspaper, that the global recession is about to produce blood in the streets, "civil wars" and toppled governments. By Friday it was the No. 1 all-time best-read story on globeandmail.com, and a global Internet tizzy as well.

Bad, bad news has been avalanching ever since. Nouriel Roubini, New York University's famous Dr. Doom, is predicting the collapse of Eastern Europe. "The financial system is actually imploding right now," the professor implacably informed his TV audience this week.

Meanwhile, Standard and Poor's has downgraded Ukraine's foreign currency rating to CCC-minus — that's seven levels below investment grade, ladies and gentlemen, the equivalent of your dope-smoking teenage son getting a mark of 13 in physics. The prospect of a default has European bankers sprinting for the Valium.

In Toronto, Paul Volcker, a former chairman of the U.S. Federal Reserve Bank, has admitted he has no idea how to fix the mess.

In New York, Nobel-Prize-winning economist Paul Krugman is calling for the nationalization of banks. In England, storekeepers are posting a sign in their windows; Keep Calm and Carry On, it reads, a slogan revived from the Blitz. The new bad news is so bad, even Bernie Madoff has been knocked out of the spotlight. By now he barely qualifies as a shoplifter.

This is the way we live these days, hiding under the blankets. But as frightening as the future looks, we seem to enjoy being told how much it's going to hurt. Dire news makes us feel like grown-ups, serious once more. We might consider seeing a collective psychiatrist. At the very least, we should take a close look at what we're afraid of.

Niall Ferguson wields the whip of shame the way we like it. "Niall is a self-publicist and a controversialist," one of his fellow Cassandras on the global lecture circuit says. "That's his stock in trade."

The Scottish-born, Oxford-trained, Harvard-seated professor's fourth book, The Ascent of Money, is currently No. 4 on the New York Times's business bestseller list. His website is stacked with his latest pronouncements. They range from a discussion of pre-First World War central bank incompetence, which led to the rise of fascism and Hitler (his ever-ready theme), to an imaginary economic retrospective of 2009 (predictions include an assassination attempt on Barack Obama by al-Qaeda next Thanksgiving).

He works the rhetoric of doom like a master. Is violence inevitable because of this crisis? "There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]"— but we already knew that, where's the evidence? "It will cause civil wars to break out that were dormant" — again, where, and were they about to break out anyway?

Prof. Ferguson's best stroke is to nuzzle up to the Direst Prediction of All, without touching it. "I don't see it producing anything comparable with 1914 or 1939." By then, of course, the war horse is out of the barn.

Most of all, he's a good storyteller. His prose style is as brisk as his speeches are lucrative, at $50,000 per. Don't complain: You deserve it.

Nouriel Roubini, the other dark oracle of the Collapse of '08, is known to fans as "The Professor," which is what he is at the aptly named Stern School of Business at New York University. He's also the chairman of RGE Monitor, which provides a relentless barrage of online bleakness about the global economy, assembled by teams of economists and analysts. The reports sell "to an average retired person," the RGE receptionist explained recently, "for about $5,000."

The professor in New York isn't as flashy as the historian in Boston, but he is easily as respected. It was Prof. Roubini who first predicted, back in the day (2006) that the housing collapse would produce the credit squeeze. (He underestimated the losses, though, at $1-trillion, versus a reality of as much as four times that number.) "People called us lunatics," Christian Menegatti, the managing editor and chief economist of RGE Monitor, recalls.

Lately, Prof. Roubini has been ratcheting up the fear factor with talk of "zombie banks" — liabilities greater than assets, hence worth "less than zero." His expressionless delivery —the man rarely blinks — has the same staggering effect that kryptonite had on Superman. His mantra is "the worst is yet to come." When the recovery does arrive — growth of 1 per cent or less, at the very end of 2010 — it will be so feeble "that it will feel terrible even if the recession is technically over."

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Excuse me while I lie down in front of that truck.

Compared with Profs. Ferguson and Roubini, other economic alarmists are practically upbeat. At 86, Paul Volcker is the Eeyore of the woe-wringers: He doesn't threaten dire decline so much as he renders you catatonic with the incessant unfathomability of it all.

"I have never, in my lifetime, seen a financial problem of this sort," he recently told an audience in Toronto. "I'm not saying it's going to get anywhere as serious as the Great Depression, but that was not an ordinary business cycle either." Aiiiieeeeee!

Why do we hunger for their dark predictions? It's an interesting question. Maybe Tolstoy was right: Unhappiness tells us more about ourselves than optimism. Maybe the prospect of a sharp cleansing purge makes us feel better about our languid lust for pleasure: ow trumps oooh. Maybe, as Martin Wolf, the renowned chief economic pundit for the Financial Times (and no stranger to the international doom circuit) says, "This is a shock. And in periods of shock, people get real. They ask big questions about their lives."

"There is a peculiar human need to contemplate disaster," Vivian Rakoff, professor emeritus in the department of psychiatry at the University of Toronto, says. "Because there is the sense that if it gets bad enough, we can start over again."

Things are different here in Canada. When I telephoned Wendy Dobson, a former director of the C. D. Howe Institute who now teaches at the University of Toronto, she said "Calm down!" before I even said hello. Dr. Dobson takes Niall Ferguson's alarms with a grain of the old salt: "Predictions of civil war and depression?" she says. "He's right — in some small, badly governed country." And while she admires Prof. Roubini's foresight, she claims he occupies "the bleeding edge of prognostication," so far out in the future that's it's hard to be anything but cautious and non-committal about his views.

Optimism isn't common here, but it isn't unheard of. "We continue to maintain the view that a recovery will take hold by the end of the year," Douglas Porter, the chief economist at the Bank of Montreal, said yesterday, "despite the recent wave of downbeat economic releases."

Mr. Porter and Dr. Dobson are rarities: Most economists have an ingrained terror of being caught out as the Dolt of the Century — like, say, James Glassman, who published the ultimate text of optimism, Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market, in 1999, when the Dow Jones industrial average was exuberantly cresting 11,700. Today, the Dow sucks air just over 7,000.

Even worse to be Irving Fisher, the eminent Yale economist who promised Americans the stock market had reached a "permanently high plateau" in 1929, a week before its pants fell off, and 24 years before it pulled them back up to where they'd been. Promise up or down, but down is safer. "What doesn't sell," Mr. Wolf says, "is being in the reasonable middle. If you're going to hear a speaker, you either want a new point of view or a list of calamities."

Today's extreme pessimism is a lesson even the doomsayers learned the hard way. Mr. Wolf has taken of late to talking to his wife about his past economic predictions. "I find all the embarrassment today, looking back three or four years ago, is that I was clearly too optimistic." He wasn't alone. "Nobody came close to being pessimistic enough. That is the most significant feature in the past 12 months. Essentially, what has happened is way more pessimistic than anyone predicted."

Which, oddly enough, is predictable. Even Niall Ferguson and Nouriel Roubini, the most daring doom divas, hesitate to raise the spectre of the Great Depression. "I'm not making the comparison to this crisis," Mr. Wolf says. "I'm not. But without the Great Depression, Hitler would never have come to power." Europeans are especially sensitive to the destabilizing power of severe recessions, to the fact that the Depression in the United States led to fascism in Europe. Drs. Ferguson, Roubini and Wolf all are Europeans.

"The countries with pretty strong democracies withstood it," Mr. Wolf says. "Those without did not. I don't find that so implausible. Really frightened people do really frightening things."

The trick, then, is not to be frightened — to resist not just the urge to panic, but also "the puritanical dislike of the world human beings have made," as Dr. Rakoff puts it, that makes us welcome doom and bust. "This crisis does seem more serious, and I don't want to be an idiot. But I do think that for one of the first times in history, everybody is in it. No one is chortling. It's a single raft of the economy, afloat in the stormy sea."

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[ricochettty]

"In Toronto, Paul Volcker, a former chairman of the U.S. Federal Reserve Bank, has admitted he has no idea how to fix the mess."

How the hell is Obama so optimistic then? That's his guy. Personally I don't have much faith in him.

[Usendyduexy]

I just hope that a lot of third world countries default and stop paying their debt.

[Meenepek]

You still haven't read about the head of the IMF saying we're in a depression? I've been waiting weeks for you to add that to your fear-mongering repertoire...

Why do you seem so emotional about all this?