Be Wary, Greater Depression Still Around the Corner

Lest the current ‘recovery’ make you irrationally optimistic, there are numerous reasons to still prepare for the worst.

Former chief economist of the US-China Economic and Security Review Commission Thomas Palley digs into a few key reasons the second Great Depression remains utterly imaginable. First off, he’s critical of the constant cheerleading of public officials, and “Wall Street’s genetic propensity to pump the economy.” The financial services industry only stands to benefit from the increased management, advisory, and transaction fees that take place in a bull market. It follows that they want to believe, and make others believe, that recovery is underway.

Instead, Palley points out that “there are solid grounds for believing the US economy will experience a second dip followed by extended stagnation that will qualify as the second Great Depression.”

Unlike mainstream economists who believe the economy will naturally once again resume its gravitation towards full employment, he believes, and The Daily Reckoning agrees, that our previous economic paradigm has imploded.

There’s little reason to expect that the main factors that have in recent history contributed to economic growth, namely debt and asset bubbles, are somehow going to return to save the day. It just doesn’t make sense. The economy needs to return to growth free from stimulus and boondoggles.

The Financial Times has the full contents of Thomas Palley’s insight on the second Great Depression.