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KILLER_CLOWN
09-17-2008, 10:33 PM
Former chief economist for the world bank says “you have to be in fantasy land to say that everything is fine”

Steve Watson
Infowars.net
Wednesday, Sept 17, 2008

Two time Nobel-prize winner and former chief economist of the World Bank, Joseph Stiglitz has warned that the current financial crisis will continue for at least another eighteen months and in many ways represents a worse situation than the one faced by Americans during the great depression of the 1930s.

“You can paper things over for a while but eventually you have to face reality.” Stiglitz told the nationally syndicated Alex Jones show yesterday.

“This is clearly the most serious problem since the great depression and in some ways worse in terms of the financial institutions.” Stiglitz commented, referring to the fact that lenders are unwilling to take risks to finance each other because they no longer have complete access to their own undertakings let alone those of other institutions.

“The reason, in part, is that while some of the same problems that occurred during the great depression and have occurred since, such as excessive leverage, pyramid schemes, bubbles, have happened before, the so called innovation of Wall Street, the financial innovations, that were supposed to manage risk, created a kind of non transparency that is now so great that no one knows exactly the magnitude of the risk they face.”


“It is particularly bad because our financial institutions are based on trust, you put the money in the bank and you trust that you can get your money out, so trust is absolutely essential for the functioning of our financial markets and the functioning of our economy.” he continued.

“The problem is that much of the news on what is going on in the financial markets comes from those who are making money out of the financial markets. So if you were one of the people involved with Lehman Brothers or AIG, you’re going to be talking up the economy. The head of Lehman Brothers was quoted last April as saying we have turned the corner, the economy is on the uptick. And the same thing goes for the president and the secretary of treasury.”

“The fact is that they are involved in salesmanship.”

Describing the current situation as a “top down crisis”, Stiglitz also cited the $3 trillion cost of the Iraq war as a key factor in the economic downturn, saying it has increased the budget deficit and consumed resources that would otherwise promote growth.

“This is the first war in American history that has been totally financed on the credit card… For the last five years as the war has gone on we have been a debt economy. It is the first war since the revolutionary war that we have had to turn to foreigners to finance, 40% of our national debt is now being financed by foreigners… Even as we went into the war we had a big deficit, and yet the president called for tax cuts for upper middle class Americans.” he said.

“And there is another level of trust, those in other countries have to have trust that the American economy is working well, they have to trust that when the president says everything is going well, it is. This administration has really burned that trust, the president said there is no problem, there’s just a few too many houses been built. Well if that is the level of analysis the Untied States is giving about the nature of its economic problems, no wonder everybody around the world is losing confidence. “

Stiglitz is no stranger to positioning himself in opposition to the establishment on the economic front. In October 2001 he caused controversy when he exposed rampant corruption within the IMF and blew the whistle on their nefarious methods of inducing countries to fall under their debt before stripping them of sovereignty and hollowing out their economies.

“It is clear that the Bush administration is not responding to these problems, partly because the problems are of their own making.” Stiglitz asserted.

Over the next twelve months, Stiglitz predicts that house prices will continue to fall, more mortgages will go into foreclosure and more financial firms will be put into crisis.

“I am particularly worried about what I call the ‘real economy’. Basically when the financial system starts getting weak, it is not in a position to provide credit, to provide loans, to provide mortgages and that means in turn that housing prices are going to fall further, businesses are going to contract, unemployment is going to grow and it is a downward vicious cycle… I don’t want to be obsessively pessimistic but you have to be in fantasy land to say that everything is fine, and even to say that we have turned the corner. We’re still in the downward phase of this economic cycle. We should not anticipate emerging from this for a year and a half or longer.”

In a long term prediction 22 months ago, Stiglitz told listeners of the Alex Jones show that he believed a global economic crash would occur within 2 years. With major financial institutions now folding every week, others touting mergers just to stay afloat and stocks continually plummeting on a daily basis it seems that prediction is coming to pass.

Stiglitz stressed that in order to emerge from the crisis, the economy needs a stimulus, that really works, consisting of increased aid for local government, stronger unemployment insurance and more investment in infrastructure.

“I would take advantage of this particular time in order to stimulate our economy in ways that provide the basis of our longer term economic growth. If our economy is growing then we will be better able to manage some of this financial turmoil.” he concluded.

Listen to the interview below:

http://www.prisonplanet.com/nobel-prize-winning-economist-crisis-as-bad-as-great-depression-or-worse.html

HonestChieffan
09-17-2008, 10:36 PM
Nobel Prize winner Al Gore says the sky is falling!!

KILLER_CLOWN
09-17-2008, 10:38 PM
Nobel Prize winner Al Gore says the sky is falling!!

He invented tha intrawebz! hez smarts!

BucEyedPea
09-17-2008, 10:49 PM
I wouldn't put much stock in a world bank mainstream economist when it comes to his solutions—more govt and more regs.

Don't bail them out, let the right people suffer, ( an unfortunately some who aren't) and it can be over with a lot faster than his solutions or the govts. So housing returns to more reasonable pricing allowing more people to buy.
And with new banks later, there'll be lots of new logos to design.

Need to get rid of the moral hazard:

• Caused from govt backing

• Dumb consumer protection laws that force banks to
lend to credit risks: Community Reinvestment Act
( so much for regulation being the cause)

He's an idiot.

KILLER_CLOWN
09-17-2008, 10:56 PM
I wouldn't put much stock in a world bank mainstream economist when it comes to his solutions—more govt and more regs.

Don't bail them out, let the right people suffer, ( an unfortunately some who aren't) and it can be over with a lot faster than his solutions or the govts. So housing returns to more reasonable pricing allowing more people to buy.
And with new banks later, there'll be lots of new logos to design.

Need to get rid of the moral hazard:

• Caused from govt backing

• Dumb consumer protection laws that force banks to
lend to credit risks: Community Reinvestment Act
( so much for regulation being the cause)

He's an idiot.

I found it interesting, especially since he helped expose the IMF and it's corruption. Which is quite frankly needed within our system.

HonestChieffan
09-17-2008, 10:58 PM
What corruption did he expose

SBK
09-17-2008, 10:58 PM
If baby boomers decide it's time to sell and not watch their retirements go down the tubes than what we'll see will make the Great Depression look like a day at Disney World.

HonestChieffan
09-17-2008, 11:00 PM
They wont. It wont.

KILLER_CLOWN
09-17-2008, 11:02 PM
What corruption did he expose

Joseph E. Stiglitz was Chief Economist at the World Bank from 1996 until 1999, during which time he became quite critical of World Bank policy. Under pressure to keep quiet, he resigned in protest.

The text below is excerpted from What I Learned At The World Economic Crisis




The global economic crisis began in Thailand, on July 2, 1997. The countries of East Asia were coming off a miraculous three decades: incomes had soared, health had improved, poverty had fallen dramatically. Not only was literacy now universal, but, on international science and math tests, many of these countries outperformed the United States. Some had not suffered a single year of recession in 30 years.

But the seeds of calamity had already been planted. In the early '90s, East Asian countries had liberalized their financial and capital markets--not because they needed to attract more funds (savings rates were already 30 percent or more) but because of international pressure, including some from the U.S. Treasury Department. These changes provoked a flood of short-term capital--that is, the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories. In Thailand, this short-term capital helped fuel an unsustainable real estate boom. And, as people around the world (including Americans) have painfully learned, every real estate bubble eventually bursts, often with disastrous consequences. Just as suddenly as capital flowed in, it flowed out. And, when everybody tries to pull their money out at the same time, it causes an economic problem. A big economic problem.

The last set of financial crises had occurred in Latin America in the 1980s, when bloated public deficits and loose monetary policies led to runaway inflation. There, the IMF had correctly imposed fiscal austerity (balanced budgets) and tighter monetary policies, demanding that governments pursue those policies as a precondition for receiving aid. So, in 1997 the IMF imposed the same demands on Thailand. Austerity, the fund's leaders said, would restore confidence in the Thai economy. As the crisis spread to other East Asian nations--and even as evidence of the policy's failure mounted--the IMF barely blinked, delivering the same medicine to each ailing nation that showed up on its doorstep.

I thought this was a mistake. For one thing, unlike the Latin American nations, the East Asian countries were already running budget surpluses. In Thailand, the government was running such large surpluses that it was actually starving the economy of much-needed investments in education and infrastructure, both essential to economic growth. And the East Asian nations already had tight monetary policies, as well: inflation was low and falling. (In South Korea, for example, inflation stood at a very respectable four percent.) The problem was not imprudent government, as in Latin America; the problem was an imprudent private sector--all those bankers and borrowers, for instance, who'd gambled on the real estate bubble.

Under such circumstances, I feared, austerity measures would not revive the economies of East Asia--it would plunge them into recession or even depression. High interest rates might devastate highly indebted East Asian firms, causing more bankruptcies and defaults. Reduced government expenditures would only shrink the economy further.

So I began lobbying to change the policy. I talked to Stanley Fischer, a distinguished former Massachusetts Institute of Technology economics professor and former chief economist of the World Bank, who had become the IMF's first deputy managing director. I met with fellow economists at the World Bank who might have contacts or influence within the IMF, encouraging them to do everything they could to move the IMF bureaucracy.

Convincing people at the World Bank of my analysis proved easy; changing minds at the IMF was virtually impossible ... It was maddening, not just because the IMF's inertia was so hard to stop but because, with everything going on behind closed doors, it was impossible to know who was the real obstacle to change ... I shouldn't have been surprised. The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn't "impose" anything. It "negotiates" the conditions for receiving aid. But all the power in the negotiations is on one side--the IMF's--and the fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants.

When the IMF decides to assist a country, it dispatches a "mission" of economists. These economists frequently lack extensive experience in the country; they are more likely to have firsthand knowledge of its five-star hotels than of the villages that dot its countryside. They work hard, poring over numbers deep into the night. But their task is impossible. In a period of days or, at most, weeks, they are charged with developing a coherent program sensitive to the needs of the country. Needless to say, a little number-crunching rarely provides adequate insights into the development strategy for an entire nation. Even worse, the number-crunching isn't always that good. The mathematical models the IMF uses are frequently flawed or out-of-date. Critics accuse the institution of taking a cookie-cutter approach to economics, and they're right. Country teams have been known to compose draft reports before visiting. I heard stories of one unfortunate incident when team members copied large parts of the text for one country's report and transferred them wholesale to another. They might have gotten away with it, except the "search and replace" function on the word processor didn't work properly, leaving the original country's name in a few places. Oops.

It's not fair to say that IMF economists don't care about the citizens of developing nations. But the older men who staff the fund--and they are overwhelmingly older men--act as if they are shouldering Rudyard Kipling's white man's burden. IMF experts believe they are brighter, more educated, and less politically motivated than the economists in the countries they visit. In fact, the economic leaders from those countries are pretty good--in many cases brighter or better-educated than the IMF staff, which frequently consists of third-rank students from first-rate universities. (Trust me: I've taught at Oxford University, MIT, Stanford University, Yale University, and Princeton University, and the IMF almost never succeeded in recruiting any of the best students.)

The IMF pressed ahead, demanding reductions in government spending. And so subsidies for basic necessities like food and fuel were eliminated at the very time when contractionary policies made those subsidies more desperately needed than ever ... Not only was the IMF not restoring economic confidence in East Asia, it was undermining the region's social fabric. And then, in the spring and summer of 1998, the crisis spread beyond East Asia to the most explosive country of all--Russia.

Today, Russia remains in desperate shape. High oil prices and the long-resisted ruble devaluation have helped it regain some footing. But standards of living remain far below where they were at the start of the transition. The nation is beset by enormous inequality, and most Russians, embittered by experience, have lost confidence in the free market. A significant fall in oil prices would almost certainly reverse what modest progress has been made.

East Asia is better off, though it still struggles, too. Close to 40 percent of Thailand's loans are still not performing; Indonesia remains deeply mired in recession. Unemployment rates remain far higher than they were before the crisis, even in East Asia's best-performing country, Korea. IMF boosters suggest that the recession's end is a testament to the effectiveness of the agency's policies. Nonsense. Every recession eventually ends. All the IMF did was make East Asia's recessions deeper, longer, and harder. Indeed, Thailand, which followed the IMF's prescriptions the most closely, has performed worse than Malaysia and South Korea, which followed more independent courses.

I was often asked how smart--even brilliant--people could have created such bad policies. One reason is that these smart people were not using smart economics. Time and again, I was dismayed at how out-of-date--and how out-of-tune with reality--the models Washington economists employed were. For example, microeconomic phenomena such as bankruptcy and the fear of default were at the center of the East Asian crisis. But the macroeconomic models used to analyze these crises were not typically rooted in microfoundations, so they took no account of bankruptcy.

But bad economics was only a symptom of the real problem: secrecy. Smart people are more likely to do stupid things when they close themselves off from outside criticism and advice. If there's one thing I've learned in government, it's that openness is most essential in those realms where expertise seems to matter most.


http://www.whirledbank.org/ourwords/stiglitz.html

HonestChieffan
09-17-2008, 11:04 PM
So, he was ignored and quit?

BucEyedPea
09-17-2008, 11:04 PM
KC - I can believe the World Bank is corrupt. But we just don't need it.
If a central bank doesn't keep us independent of the political elites and the politcally connected than why would a World Bank? It's just the same thing but on a global level.

Besides isn't that where Wolfowitz was until he was caught up in a scandal too? I think it was.

KILLER_CLOWN
09-17-2008, 11:05 PM
So, he was ignored and quit?

Yeah, it's better off than being placed 6 feet under.

HonestChieffan
09-17-2008, 11:08 PM
were they gonna kill him?

KILLER_CLOWN
09-17-2008, 11:47 PM
were they gonna kill him?

who knows, but obviously he wasn't allowed to do his job and wasn't going to have a positive impact or be allowed to expose the corruption so what were his choices? play ball or get lost i'm assuming.

HonestChieffan
09-17-2008, 11:48 PM
So nothing ever came from his efforts?

KILLER_CLOWN
09-17-2008, 11:53 PM
So nothing ever came from his efforts?

Well the information is out there, but it's not like the msm would run it as a cover story. Were talking about the IMF, i'm sure you heard about the Oil for food scandal and nothing ever became of that either.

HonestChieffan
09-17-2008, 11:56 PM
hard to call it a scandal if nothing came of it

KILLER_CLOWN
09-17-2008, 11:58 PM
hard to call it a scandal if nothing came of it

IE if Faux news or the Communist news network didn't tell me then it never happened, got it.