BOSTON — Remember the dark days of 2008 when we all began asking reasonable questions about the viability of the global financial system? Storied U.S. investment banks were collapsing or searching desperately for capital. Global markets were tumbling. Real people worldwide — from Wall Street to Ouagadougou — felt queasy about their economic futures?
Well, those unhappy days are back. And this time around, it could be even worse.
That's the word on the street Thursday, anyway, as global markets dive and some of the most depressing analysts on the planet utter new rounds of increasingly dire pronouncements.
Nouriel Roubini is the loudest Tweeter of doom right now.
Here's a quick sample of his grim Tweets so far today:
- US, Eurozone and UK are effectively in a recession now. And policy makers are running out of policy rabbits to pull out their policy hats
- RGE (www.roubini.com) predicted in July a 60 percent probability of recession in most advanced economies. By now that probability is much higher.
- Only issue now: will it be a mild G7 recession or a severe recession plus global financial crisis as bad or even worse than the 2008-09 one?
- Yes we now need celestial divine intervention as we are running out of policy rabbits... MERKEL SAYS SHE, POPE SPOKE ABOUT FINANCIAL MARKETS
- Economy already in recession. Whatever the Fed does now is too little too late
Roubini, though, is hardly alone.
Check out this happy song from the New Republic's John B. Judis that points out the troubling parallels between the U.S. economy now and its darkest hour, the Great Depression of the 1930s.
"Unless there is a fundamental — and difficult-to-imagine — change in the way our politics interacts with our economy, the United States and much of the world are headed for a very grim future," Judis writes.
"Today's recession does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it," he adds. "It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation. The 1920s saw the spread of electrification in industry; the 1990s saw the triumph of computerization in manufacturing and services. The recessions in 1926 and 2001 were both followed by jobless recoveries."
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Wherever you look right now things do look dark, indeed:
The U.S. economy — which produces a fifth of global output — is a mess by almost any standard, from high unemployment, to rising poverty, to declining consumer confidence, to a long-term fiscal picture that needs serious fixing. Nor is it comforting when the Federal Reserve utters the phrase "significant downside risks," as it did following Wednesday's Federal Open Market Committee meeting.
Europe, the world's largest economic entity, is in even worse shape thanks to an ongoing debt crisis. And Europe's new "super-watchdog," the European Systemic Risk Board, is making scary noises:
"The high inter-connectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond," it said in a statement.
Meanwhile, the economic hero of the day, China, is also looking increasingly weak. China's manufacturing sector shrank in September, the third straight monthly contraction. That's raising doubts that China's boom can help offset the economic problems in the U.S. and Europe.
So what needs to happen?
Most reasonable economists are calling for immediate and dramatic action by governments to help kick start growth. Swift and decisive, please. In short, the global economy needs strong leadership to boost demand and, more importantly, restore consumer and business confidence.
Instead, we have a timid jobs plan from President Barack Obama that is dead-on-arrival in Congress.
We have the leading Republican presidential candidate threatening Ben Bernanke, and calling him "treasonous."
More economy coverage from GlobalPost: A world of debt
In Europe, we have increasing political animosity between the "north and south," over what to do about Greece and the devastating effect a Greek default would have on Europe's fragile banking industry.
Moreover, it's hard to even take Europe's leaders seriously when you have the vulgar prime minister of the world's 7th largest economy reportedly treating the chancellor of Europe's largest economy with the utmost disrespect.
To be sure, not everyone is predicting a repeat of 2008.
Here's what economists at IHS Global Insight write, as reported by the Wall Street Journal's Real Time Economics blog:
"While the risks of recessions in the United States and Europe have risen, a repeat of the financial meltdown of 2008 and the ensuing 'Great Recession' does not seem likely. Emerging markets will almost certainly continue to grow, albeit more slowly. Central banks stand ready to — once again — deploy unorthodox policies, if needed. That said, a financial shock emanating from the Eurozone could do a lot of damage."
Let's hope central banks can, once again, help.
But until we see strong economic leadership around the world — and consumers and businesses feel confident enough to start spending again — it's going to remain very bleak out there.