Sprott and Roubini Leaning Toward Depression

No one really knows which direction we are headed, however it seems that Nouriel Roubini and Eric Sprott, CEO of Sprott Asset Management are leaning toward Economic Depression. So far, we have not had a crash similar to the 1929 crash, however in many sectors ( building, real estate, manufacturing) there exists an economic depression. The causes of depression are widespread. From cheap money to reckless lending. I hope, as you do, we do not end up in a situation similar to the 1930 depression.

Nouriel Roubini and Eric Sprott were interviewed last week. It is informative and interesting.

Comments

[Jasper M:]

Cretin, just keep chanting that. Check your history. US Stock market staged several huge percentage rallies in the early 30's, still ended up down close to 90%. The huge percentage rally in the first few days after the early March bottom is NOT a good sign, it is a Warning - bull markets do not tend to present this way.
As for the notion that the recession is over, I wonder where you are speaking of.
The Fed is cheerleading. There is no way they can pump purchasing power, in Any form, into the system as fast as credit is being destroyed by the sea change in sentiment. Extending credit will not work if end users decline to use it, and if their facilitators (big banks) just take it and sit on it - that's zero money velocity, = 0 reflationary pressure.
Their only alternative is the printing press, which has its own logistical problems - I believe I saw it estimated that printing 3 trillion $ in $100 bills would take 80 years! suppose that's off by factor of 10 - still too late to save Obama and company.
I would encourage you to read a primer an Austrian economics. That school's modern proponents warned us about this 20 years ago, and few listened. I did, and I made a killing last year.

Apr 13 03:38 AM

[ThatGuyInTh...:]

Jasper,

Money is no longer "printed," but created as as bytes on a computer. Believe me, we can create it as quickly as needed.

I do agree, thought, that the recent market shares are short term and illusory, much like cheap oil prices. Neither will last.

The money problem right now is 200 trillion in aggregate derivatives exposure by US banks and a quadrillion worldwide. If we were all forced to "mark to market," we'd have to acknowledge that those assets are worth about as much as belly button lint, and the banks go into receivership. Since the US government has determined that this is not necessary, we can all go on pretending a little bit longer and hope that wishing makes it so.

It won't. The piddling little few trillion thrown at the problem will only create fake prosperity, and only for a while.

Apr 13 08:40 AM

[Steven Hansen:]

when roubini and sprott were talking they kept flipping between banking (non-productive economy) and manufacturing (productive economy). as gdp reporting is productive economy, we need to understand that we can have a situation where the productive economy is stabilizing while the non-productive economy (banks and asset values) keep destructing.

i say this because i know later this year some people are going to be shouting we turned the corner economically because we have gdp growth.

the economy will still be in the shitter. there will be no recovery as we know it historiically until the debt and banking issues get resolved.

Apr 13 09:17 AM

[ussmls7:]

Steve Hansen,here is a article that backs you in some ways & but goes futher! "A Critique of the Quantity Theory of Money, by Antal E.Feteke, posted at goldseek.com 4/12/09. I believe the keynesian & freidmanites that Bush & now Obama rely on will continue to take us over the edge while using any crisis as a smoke screen to add on more debt,because that's what progressives do. I hope you will benfit from a different view!

Apr 13 10:00 AM

[kelm:]

I think we are going to see a very odd recovery trajectory in the US and Europe as we stagger between periods of apparent improvement back to periods where growth just doesn't seem to be there. The comments about the banks above are correct I believe. They and the massive overhang of total debt in this country will keep the breaks on any sustained recovery. having said that, I do believe that China and other parts of Asia that are successfully stimulating domestic demand will see recovery. They may not have the double digit growth they had in recent years but a few billion people growing at 6-8% a year can do wonders for the world. Couple that with a depreciating dollar and there are some solid opportunities out there in world markets.

Apr 13 10:11 AM

[User 353732:]

Public policy in most of the economically important parts of the world , it seems to me, at present consists of transferring trillions of dollars from productive to unproductive assets, from income producers to loss generators, from entrepreneurs to bureaucrats, from savers to wastrels, from decentralized resource allocation decision makers to centralized resource allocation decision makers. Will this not lower the global rate of return on deployed financial and human capital and increase the deadweight loss in the planetary economy? Does not sustained , quality, growth depend on net value added from deployed resources rather than net value subtracted? How does force feeding people already sick from overeating while starving the lean and fit lead to a healthier populace? No doubt, the old economics had several and, with the perspective of time, obvious flaws? How is the new economics an improvement?

Apr 13 10:49 AM

[Gregman2:]

Despite all the credit being pumped in debt is leaving the system faster. There's still too much unsustainable debt. See: www.debtdeflation.com/.../

Apr 13 11:30 AM

[shrivman:]

Hmmm - you must not have watched the interview that I did.
Roubini was talking about a serious recession - coming from him that is quite an improvement over his previous depression stance. I was surprised and happy to here his change in position, although he could also be wrong.....we haven't been here before and no one has the answers.

Apr 13 11:53 AM

[John Ryskamp:]

It's too bad that no one pays attention to the facts on the ground. All eyes seem to be on the economic and political systems--reforms are to take place there.

That is a mistake. Not only is demand collapsing, but also, the supply chain is collapsing. You really have to start shoring up important facts.

For example, you need an immediate, individually enforceable, permanent and absolute ban on housing evictions. It is already being informally undertaken. For example, did you know that last week was the THIRD time the Federal Government has unofficially told banks NOT to foreclose on any more homes? This is turning into a right in the possessor of the housing, and represents the Federal Government's attempt to conform with the new Constitutional regime.

It conflicts with the ideology of both right and left: the right screams moral hazard, the left screams decline of power in the political system over housing. But ideologists are more interested in conforming the facts to their b.s., than in confoming their b.s. to the facts. Sad.

Economic activity will NEVER increase until there are more individually enforceable rights. You Austrian types not only have bad economics (see what Sraffa did to Hayek!), but also, you don't know anything about the law. You're as authoritarian as any Keynesians. You have to give up your authoritarian policies. YOU don't know best, whether you are liberal or conservative. The FACTS know best.

What is really going on is a regime change in the United States. The scrutiny regime (West Coast Hotel v. Parrish 1937), has been evicted from power. The maintenance regime is moving in.

The scrutiny regime stood for the proposition that law is rationally related to a legitimate government purpose (minimum scrutiny). The maintenance regime stands for the proposition that the law maintains important facts.

NO elitist digs that, because it means removing facts from the political system and handing power over them, to the individual. Yikes!

But again, that's the way it is. I urge you, who have NO legal training, to read a discussion of the history of American regime in an excellent online article by G. Edward White of the University of Virginia Law School, "Historicizing Judicial Scrutiny."

I studied the regime change from scrutiny to maintenance regimes, in my book about emerging middle class opposition to eminent domain, The Eminent Domain Revolt.

The change in regime is coming from the only force able to bring it off: American homeowners. They are terrified about assaults on facts important to them: housing, medical care, and so on. They want the political system OUT of these facts and they want their own power IN.

And that's the way it's going to be.

Cheers,
John Ryskamp

Apr 13 02:57 PM

[basehitz:]

Gregman2,
thanks for the link. Part way through the lengthy write-up. It's very logical. I stored that with my growing collection of blogs. Seems I get most of my info now from financial blogs and have about quit watching financial porn (i.e., CNBC, FBN, Bloomberg) who are allergic to anything that interrupts their incessant cheerleading.

Apr 13 03:48 PM

[Repsonsible...:]

Were did Your IRA and Retirement MONEY probably Go ? Right to Goldman Sac s via Goverment Bailout of $180 Billion bailout to AIG that money was transfered to GOLDMAN SACs to Pay off there worhtless CDS s So GoldMan didnt lose a Dime , course everybody else did Including YOU !! Dillan Radigan fromly of CNBC tried to Break the story two weeks ago he was FIRED the Next day ! There Should be a Federal Investgation Of Goldman but there wont be . Too Many powerful politcal players to stop it .

Apr 13 05:50 PM

[Repsonsible...:]

Were did Your IRA and Retirement MONEY probably Go ? Right to Goldman Sac s via Goverment Bailout of $180 Billion bailout to AIG that money was transfered to GOLDMAN SACs to Pay off there worhtless CDS s So GoldMan Didnt LOSE a Dime , course everybody else did Including YOU !! Dillan Radigan fromly of CNBC tried to Break the story two weeks ago he was FIRED the Next day ! There Should be a Federal Investgation Of Goldman but there wont be . Too Many powerful politcal players to stop it !

Apr 13 06:14 PM

[Lilguy:]

Roubini and Sprott are not alone in their call that we are in or headed for depression. Aside from the usual Armageddonist blogger suspects (Panzer, Shedlock, etc.),then ML North American Economist Rosenberg said in a January ML commentary, "(W)e are very likely enduring another one (depression) today. Though this current one is muted by the fact that most countries have an elaborate social safety net (deposit insurance, unemployment benefits, welfare, and socialized health care)."

Similarly, in mid-January, Reuters reported on a note by SocGen asset strategist Albert Edwards in which he said, "While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie
elsewhere," Edwards wrote. "It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great
Depression."

Economic historians Eichenberger & O'Rourke, writing in VoxEU just last week, note, "To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimize this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a
Depression-sized event. That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline."

I'm not convinced that we are in or headed for a depression. Like a couple of authors' above, I think our understanding of the Great Depression and associated economics can help make better economic policy decisions now. Still, it's not clear that we are making wiser decisions. Whether or not we may enter a depression, I do believe that we now are in a major recession that will not see an economic or market recovery to pre-recession levels for at least several years, maybe even a decade.

Apr 14 08:06 AM

[Ricard:]

I find it interesting how loud and unabashed the people with the 'mainstream' opinion are in denouncing opposing views. I'm not going to say whether or not Cetin is right, but I will say that he has definitely exposed a huge contrarian opinion. That in itself is valuable information.

On Apr 13 03:38 AM Jasper M wrote:

Apr 14 04:03 PM