When mainstream economists begin to sound like an average Above Top Secret contributor, then you know we're headed for hell.
The word is out and it's dire. Think the worst is over for the credit crunch? Think we're in as deep a recession as we're gonna get? Haha! This
was just a preamble.
The chief economist at the Royal Bank of Scotland says
the global
economy is headed for a crash unseen in over 100 years, beginning sometime this July. Translated another way -- by the end of the summer,
we'll be in full-blown Great Depression II.
"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim
warnings last year about the credit crisis proved all too accurate.
RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and
the delayed effects of the oil spike inflict their damage.
What makes this prediction chilling is the mode by which this will come about -- oil. The oil price surge will finally work its venom fully into the
world economies by the mid-summer; inflation will spike to headline-making levels; and then the mass layoffs come.
Suddenly the Fed and other central banks are in a real Damocles Sword scenario: Ordinarily, the Fed would cut rates to spur growth. This time, with
rapid inflation, they will have to raise rates. That will not only choke growth, but will steepen the economic decline.
Remember, Fed Chairman Ben Bernanke is a "student" of the first Great Depression, having wrote many studies,
such as this noted 2004 speech, on the subject. His main
contention was that monetary policy makers in the lead-up to the depression caused it by bowing to outside forces to increase the interest rate.
The market crash of October 1929 showed, if anyone doubted it, that a concerted effort by the Fed can bring down stock prices. But the cost of this
"victory" was very high. According to Friedman and Schwartz, the Fed's tight-money policies led to the onset of a recession in August 1929,
according to the official dating by the National Bureau of Economic Research. The slowdown in economic activity, together with high interest rates,
was in all likelihood the most important source of the stock market crash that followed in October. In other words, the market crash, rather than
being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary
policies that preceded it. Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and
contributing to a still deeper downturn in 1930.
Translation: When the Fed increased the interest rate, it shrank the money supply, which shrank world output and GDP, which fueled depression.
Today, he's in a real pickle: Does he stick by his guns, keep rates low, maybe even cut them more and risk an inflationary spiral not seen since the
1970's, or perhaps even as bad a Germany in the run-up to WWII? Or does he bow to world banking pressure, spike rates as a way to strengthen the
dollar and deflate the price of oil, but risk spiraling our economy even further into the abyss?
Ladies and gentlemen, this is the worst economic plight we may ever see in our entire lives. It has the wholesale potential to change the very fabric
of our country, its institutions, its government and its role as a world leader.
