This is alarming, but a good take>
THERE HAS BEEN NO SHORTAGE OF COMPARISONS drawn between our current financial plight and that of the Great Depression, with Professor Robert Shiller of Yale the latest to weigh in -- on depressions and self-fulfilling prophecy -- in the New York Times.
But one money manager and commentator believes comparisons to the 1930s are somewhat spurious. "There will be a depression, but not a deflationary depression," says Puru Saxena, a Hong Kong money manager and chief executive of an eponymous wealth-management firm. He describes the problem as a solvency crisis, and says the U.S. response -- printing money and throwing it at the banks -- could result in a German-style 1920s hyperinflationary depression.
In his February note to investors, Saxena enumerates the differences between the Great Depression in the U.S. and our current predicament. By 1933, 25% of all Americans were unemployed, and some 11,000 of the nation's 25,000 banks had failed. Moreover, household income declined by 40% from 1929 to 1932, homebuilding contracted by 80% and industrial production plunged nearly 45%.
"You can't solve the problem of overconsumption by inflating," Saxena says. His solution? "Let the whole system fail." A draconian approach, but one that would save taxpayers and their descendants a not-inconsiderable amount of money.
"I don't understand why 300 million people should have to pay to save a few bondholders in these banks," Saxena says, calling the proposed solutions "the biggest heist in world history." Saxena believes the U.S. response also mirrors that of Japan, and says attempting to "prop up dodgy banks using taxpayers' money has never worked throughout history." Caveat voter.
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