Niall Ferguson, the leading financial historian, gave a speech at the State Street Bank Spring seminar. It was entertaining as well as sobering look at the events of the day. Needless to say, he is a bear as he reviews some of the history of financial markets. The chance that we could have paralysis is real. We have a chance to have a Slight Depression not a Great Depression. This could be long but not as deep as the the 1930's as we end the Age of Leverage. This is different because we are facing a Crisis of Globalization as the world economy suffers from declining trade and finance and countries turn inward.
He brings home the important point that there can e significant social unrest from this crisis. He calls it the Axis of Upheaval. We have already seen some governments topple and we are starting to see riots in some countries. This will affect the behavior of politicians to the crisis. Dramatic moves will be made but this does not imply that the moves will be correct.
The US is coupled with China through the global imbalances and this will not change. This is a bad marriage between the saver China and the shopaholic US consumer. Or paraphrasing one Chinese official "we hate you guys but there is nothing we can do."
Ferguson makes the insightful comment that the current deficit spending is more like WWII than the Great Depression. We are spending like a war but there is no fighting. The Fed and Treasury will have to work together to make rate stable.
I had a discussion with Niall after the speech and asked whether we have any precedence for the consumer bail-out with the mortgage crisis. He made the good point that the consumers are like the farmers of the 19th century. In deflation, debtors want radical solutions. We are at a time that is similar to the populist sentiment of William Jennings Bryant where he ends his speech:
"Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold."
Substitute the wording of gold for Wall Street creditors and you get the idea that there a class who wants inflation.
His new book The Ascent of Money is a good read.
He brings home the important point that there can e significant social unrest from this crisis. He calls it the Axis of Upheaval. We have already seen some governments topple and we are starting to see riots in some countries. This will affect the behavior of politicians to the crisis. Dramatic moves will be made but this does not imply that the moves will be correct.
The US is coupled with China through the global imbalances and this will not change. This is a bad marriage between the saver China and the shopaholic US consumer. Or paraphrasing one Chinese official "we hate you guys but there is nothing we can do."
Ferguson makes the insightful comment that the current deficit spending is more like WWII than the Great Depression. We are spending like a war but there is no fighting. The Fed and Treasury will have to work together to make rate stable.
I had a discussion with Niall after the speech and asked whether we have any precedence for the consumer bail-out with the mortgage crisis. He made the good point that the consumers are like the farmers of the 19th century. In deflation, debtors want radical solutions. We are at a time that is similar to the populist sentiment of William Jennings Bryant where he ends his speech:
"Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold."
Substitute the wording of gold for Wall Street creditors and you get the idea that there a class who wants inflation.
His new book The Ascent of Money is a good read.
No comments:
Post a Comment