Summary of the “The Global Financial Crisis, A Great Depression?” Discussion

If you want to believe what the US media puts out, namely, that the US is at the bottom and it is all up from here, that is up to you. The comments below give a more realistic summary of the current state of affairs. Text in bold is my emphasis. From the WSJ Economics Blog:

Former World Bank chief James D. Wolfensohn and historian Niall Ferguson gave a gloomy assessment of the world economy and said that while the outlook for the U.S. is dim, that for Europe is far worse.

In a discussion Tuesday at the New-York Historical Society with Richard Sylla, a professor at New York University’s Leonard N. Stern School of Business, Messrs. Wolfensohn and Ferguson indicated the U.S. downturn will persist through next year, and expressed little confidence that stimulus packages or financial-sector restructuring are working yet. The jury is still out on whether this is “a pause or a permanent breakdown” in the globalized economy, Mr. Ferguson said.

In the talk – titled “The Global Financial Crisis, A Great Depression?” – Messrs. Wolfensohn and Ferguson didn’t cite any bright spots around the globe but noted that China’s economy is relatively well positioned to ride out the slump, thanks to its trillions of dollars in reserves—which Beijing is tapping for its $585 billion stimulus plan. India also has some resiliency, Mr. Wolfensohn said, because its relatively stable economy doesn’t hinge on exports and its banks have expanded conservatively. “The main point, he said, “is this is a very much deeper downturn than anything that we’ve seen.”

Europe’s economic plight is far more dire than the U.S.’s, Mr. Ferguson said, because it has critical cases in Eastern Europe, such as Hungary, and because “it lacks the institutional framework to do what the U.S. is doing.” Given Germany’s highly leveraged banks, he added, it wasn’t surprising to see Chancellor Angela Merkel work during the recent Group of 20 meeting to shift the burden of Eastern Europe’s economic rescue to the International Monetary Fund from the European Union.

Mr. Ferguson, who teaches at Harvard, is a scholar of the downward spiral, having charted collapses on a grand scale in his books, “Empire: The Rise and Demise of the British World Order and the Lessons for Global Power,” as well as “Colossus: The Rise and Fall of the American Empire.” His most recent book is “The Ascent of Money: A Financial History of the World.”

For decades, Mr. Ferguson said, China and America have been locked in “a bad marriage”—with China saving too much and the U.S. overspending. To begin to right the economies of both countries, there has to be a cultural shift, with those patterns reversing he said.

Mr. Wolfensohn, who headed the World Bank from June 1995 through May 2005, went on to become a special envoy to Gaza and now is a consultant. During the discussion, he singled out Africa as a special case during the crisis, and warned that Western governments “are ignoring that part of the world.” Although economic growth will slow or even contract over the next few years, Africa’s population will continue to expand, Mr. Wolfensohn said. Without assistance, education levels are likely to decline and child mortality rates are likely to rise.

“There is a crying need for us to really sit down with the Africans and look at how much more can be done,” Mr. Wolfensohn said in an interview after the discussion. The situation will need “leadership from the G-7, the G-20 and the African countries.”