Given all the bearishness and general depression-talk out there in the markets, I thought damn it, if we’re going to talk financial depressions, who better to talk with than Ravi Batra. He is the author, of course, of the cult classic The Great Depression of 1990. More recently Mr. Batra has a new book out called The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos, which is actually kinda bullish, albeit in a bearish sort of way.
Anyway, here, from earlier this morning, are my questions and Mssr Batra’s unedited answers:
Q: Where do you see the economy going from here? Recession, depression, other?
A: I answered this question in my new book, The New Golden Age: The
Coming Revolution against Political Corruption and Economic Chaos, which
was published last year. My forecast was that a housing crisis would start in mid-2007, would be followed by Bernanke’s interest rate cuts, but would keep spreading and give rise to economic chaos by the start of 2008. In fact, on January 15th this year, in reply to CNBC business news producer, Lori Spechler, I wrote that at least the NASDAQ index could crash sometime soon, while the Dow sinks further. This is what is happening now.
Currently, I think the economy is in recession, because the unemployment
rate has begun to rise. It is going to get mush worse before it gets better. It will certainly feel like a depression, and if proper economic reforms described in my book are not followed, it will turn into a full-fledged depression.
Q: What do you think of Fed chair’s Ben Bernanke’s surprise Fed rate
cut this morning?
A: Bernanke’s emergency rate cut this morning will only delay the inevitable; this is his third cut, and the first two only forestalled the crisis. There are great fundamental problems in the economy created by our enormous debt load, and Bernanke’s rate cuts are designed to increase that load; after all, as the interest rate falls, the public is supposed to borrow even more. When the debt burden is the main source of the problem, how can more debt solve the problem?
Q: Anything else we should be keeping in mind?
A: Global economic problems are the result of global corruption, which tolerates the coexistence of rising labor productivity with stagnant wages; this wage stagnation is the worst in the United States and China. When workers become more efficient and their salaries do not rise commensurately, it is not only unfair, it is also unhealthy for the economy. Everybody is happy when productivity soars because of new technology, but if the real average wage trails the productivity jump, a huge problem is created. This is because while productivity is the main source of supply, wages are the main source of demand; so when wages trail productivity, demand trails supply. The natural way to solve this imbalance is to introduce policies that raise wages; but governments around the globe have not done this; instead they rely on the creation of new debt, because new debt also raises demand. But the debt has to rise exponentially, because productivity rises every year; and this is impossible; in the long run, debt growth must slow down, and that point is now here; in fact it arrived in June 2007, and the central banks have been scrambling to inject funds into the banking system ever since, so more debt can be created. But their efforts will be abortive, because no system can live on new debt creation forever.
Global economic chaos is on its way; in fact it has already arrived and
will get worse by the end of summer. Only fundamental economic reforms
will be able to restore stability and prosperity. Until then gird up your loins and prepare for the worst. For more on this subject, please log on to my video on youtube.com under the heading, Prout and World Poverty.