Recession is a given. Can we avoid depression?
Economists wonder if the Bush administration is ideologically inclined to do what's needed to rescue economy.
When economist Robert Parks predicted early last week that there was more than a 60 percent probability the current financial meltdown in the United States would lead to the "Bush depression," his phone began ringing like crazy with calls from the media.Skip to next paragraph
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Only last fall, most economists were forecasting a modest slowdown. Now, a good majority of them see a slump big enough to qualify as a recession.
But a depression?
The Fed, under Chairman Ben Bernanke, has taken several orthodox and unorthodox monetary actions to prevent the credit freeze-up from spreading and damaging further the basic economy.
Last Tuesday, for instance, the Fed dropped short-term interest rates another 0.75 percentage points to 2.25 percent, hoping to revive financially squeezed banks and encourage consumers to borrow and spend.
Mr. Parks, however, doubts the cuts will do much to boost the economy. Rather, he sees a further steep fall in housing prices, continued major deficits in the federal budget and in the international trade balance, a tumbling dollar, and a weak stock market leading to a genuine depression with 30 to 35 percent unemployment, greater poverty, more loss of homes, plunging bond and stock prices, even some starvation. Parks, now a Pace University finance professor (for years he was chief economist at three Wall Street firms), says he has never predicted a depression before. His e-mail to press acquaintances sparked a lot of interest, as Parks was daring to express publicly the financial community's worst nightmare.
What prompted Parks's pessimism is his assumption that the "right-wing ideology" prevalent in the White House will keep Washington from acting to ward off a major depression. A fan of famed British economist John Maynard Keynes, who called for major government spending programs to remedy the Great Depression of the 1930s, Parks would like the federal government to step up outlays to fix rickety bridges, repair pot-holed roads, improve schools, and more to provide more jobs, more income, and thus more spending to cure any economic downturn.
As Parks sees it, Washington and Wall Street are mostly counting on Fed additions to the money supply to revive the free market and right the economy.