Two years ago the U.S. economy was in the depths of one of the worst recessions in my lifetime. Financial markets were priced to the expectation that the economy was headed into a deep depression that would be far worse than anything ever seen before. At one point, corporate credit spreads and equities were priced to the belief that as many as half the companies in the U.S. would be bankrupt within 5 years or so. There were lots of forecasts of unemployment reaching as high as 25%. The bond market expected to see years of outright deflation. Financial markets all over the world we gripped by panic, and many thought we were on the verge of a global financial collapse. I hope I never have to live through anything like that again.
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Lots to Be Thankful for With U.S. Economy
Will a trillion-dollar boost US economy?
How much of a boost to the US recovery could another trillion dollars or two buy?
That’s a tricky question for the Federal Reserve when it meets on Tuesday to debate what would warrant pumping more money into the financial system.
To battle the financial crisis, the Fed bought $1.7 trillion of longer-term Treasury and mortgage-related bonds, supplementing its pledge to keep interest rates near zero for a long time.
All told, it helped stabilize a collapsing financial system and to avert what could have been a second Great Depression.
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No time for U.S. to be timid
The debate over the direction of economic policy in the United States is dangerously unimaginative.
On one side are those who demand a reduction in government deficit spending now in the belief that the government is the problem and always will be. On the other are those who advocate deficit reduction later, in the hope that somehow the economy will one day resume self-sustaining growth.
Both sides are wrong. A meaningful reduction in government spending now would hurl the U.S. and global economy into a depression. But a continuation of trillion dollar annual budget deficits as currently projected would merely postpone the day of reckoning.
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Economy Caught in Depression, Not Recession
Positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression, Gluskin Sheff economist David Rosenberg said Tuesday.
Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.
But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.
Rosenberg calls current economic conditions “a depression, and not just some garden-variety recession,” and notes that any good news both during the initial 1929-33 recession and the one that began in 2008 triggered “euphoric response.”
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