Friday, November 14, 2008

Economist: “U.S. will soon face a second Great Depression”

By most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic. The Russian economist, Mikhail Khazin predicts that the “U.S. will soon face a second ‘Great Depression.’”

Khazin points out, as have others such as University of Maryland economist Herman Daly, that consumer debt expansion is the fuel that kept the U.S. economy alive. The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible.

Consumers are overburdened with debt. This fact takes monetary policy out of the picture. Americans can no longer afford to borrow more in order to consume more.

[Excerpt of an article by Paul Craig Roberts, former Secretary of the U.S. Treasury]

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