Not As Bad As Before--Worse

It's one thing when the author of a book entitled Financial Armageddon (with a blog of the same name) highlights the threat of depression and hyperinflation in the United States. Many people naturally dismiss such talk as the rantings of a permabear (or lunatic) or, more cynically, as some sort of attention-grabbing marketing effort.

However, it's another thing when the former head of one of the most well-known and highly regarded firms in the financial industry -- prior to recent years, that is, when it actually meant something -- warns that America is on the precipice, teetering towards economic abyss.

In "Whitehead Sees Slump Worse than Depression," Reuters reports on the views of an old hand who spouts a different message than the one you'll hear from many of today's Wall Street crowd.

The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.

Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.

"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

Whitehead warned the country's financial strength is at risk due to the sweeping demand for tax relief and a long list of major government spending plans.

"I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America," said Whitehead, who served as chairman of the Lower Manhattan Development Corp after the World Trade Center was destroyed during the September 11, 2001 attacks.

Whitehead, who helped make Goldman a top-tier Wall Street firm and led its international expansion, left in 1984 to become a deputy secretary of state under Ronald Reagan.

He warned that the country's record deficit is poised to balloon as the public calls on government for more support.

"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."

There are at least ten "trillion dollar problems," facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

"The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs -- all very costly and all done by the government," he said.

Large deficits can weaken the country's credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take "several years" for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

"I just want to get people thinking about this, and to realize this is a road to disaster," said Whitehead. "I've always been a positive person and optimistic, but I don't see a solution here."

Comments

[dukeb]

I think there's a bit of creative/disingenuous editing on this one. Note how the reporter breezily intertwines Whitehead's speculation of the general economic fate of the USA with what should be his separate speculation over what would happen if a credit downgrade of the USA occurs. In my eyes, Reuters crosses line with the headline itself. "Whitehead sees slump worse than Depression" I'll bet that's out of context and should probably be qualified with it only being the case *IF* the USA gets a credit downgrade. (Which is well deserved.) And then note the awkward tense used to open the third paragraph; ""I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system."" That sounds like he answered a question such as "What would happen if the credit of the United States of America gets downgraded?" But that question doesn't appear here, and as it stands, the response doesn't seem provoked by the preceding paragraph. I don't have time (or the phone number) to call Whitehead directly and confirm any of this, but....

[Richard Norton]

John Whitehead is absolutely on the money in this article. It's a shame that more of his assoaites won't come forward and send a wake up call to America, S&P is under pressure with the US "AAA" rating and if that is reduced all hell will break lose, sending markets and sredit into a tailspin that we may never come out of. The is no one at the helm and it's time that people like John Whitehead and other patriotic business leaders take the lead, sit at the table and help address the problems that are facing us or I'm afraid that Mr. Whitehead will have more to think about than the downgrades on US Bonds.So I challenge you Mr. Whitehead, to call some of your past and present associates,meet in Florida and let's roll up our sleaves.

Richard Norton
Jupiter FL

[Paul Stiles]

Not that my opinion matters much, but this sounds like a bull throwing in the towel more than anything else. He is basically saying that we are screwed because Americans don't want to be taxed? It is a little more complicated than that, isn't it?

I might be able to see his point if there was a viable alternative to the USA, but there isn't.

[Jose Bittar]

Let me get this straight. What we need is more taxation? Which will make it more difficult for people to pay their debts (leading to more and more defaults)?

Brilliant thinking.

[Andrew]

Do you want to know where this is all going? I read a book recently that makes sense of it. Much more creepy than you think. On the other hand also just a ripper of a yarn.

Check it out.
www.strategicbookpublishing.com/TheFlameOfHeaven.html