You think the American media have been brutal about casting our economy in a negative light? They have nothing on the international media.
A February 13 Reuters report suggested  the U.S. government may have to go on an American asset-buying spree to keep the economy from plunging into a depression. That’s right, a depression – not just a recession.
“Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts,” wrote John Parry, a reporter for Reuters.
The description “one of the most bearish market analysts” is quite an understatement. Bernard Connolly, global strategist at Banque AIG in London, said “Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit – preferably tax cuts – or restoring overvaluation of equity prices.”
The entire story was focused on Connolly’s opinions, without other economists’ views.
Connolly compared the current American economic condition to that of pre-Great Depression United States.
“The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said,” wrote Parry.
One European media outlet isn’t quite as bleak about the economy. Wolfgang Munchau wrote in the February 10 Financial Times a repeat of the Great Depression is unlikely . Such a repeat would be triggered by a dramatic deflationary spike.
“Deflation is the ultimate economic calamity – because of the human and financial misery it brings and the constraints it puts on policy,” Munchau wrote. “We fear deflation because of its self-reinforcing effects.”
But as Munchau explained – such Great Depression-era deflation would be very difficult to reach.
“The deflation we fear is a large slump in the price level and a permanent shift in price expectations,” Munchau wrote. “During the Great Depression, the US wholesale price index fell by 33 per cent. Such a price fall is not likely in our globalised economy.”
According to Parry, another similarity of pre-Great Depression America and now are bad U.S. loans to Latin American countries which had to be written off and the bad subprime mortgages of today.
However, housing and even to a lesser extent, subprime mortgages are a tiny part of the U.S. economy. According to Brian Wesbury, an economist for First Trust Advisors, L.P., the housing market is only 4.5 percent of the U.S. gross domestic product.
“To put that into comparison, exports are 12 percent of GDP,” Wesbury said on CNBC’s January 28 “The Call.”  “Yes, housing is weak, but exports are booming. They’re 14 percent from last year. That’s offsetting the pain from housing.”