WSJ Op-Ed: “global depression?”

David Roche has an interesting op-ed in Saturday’s WSJ:

The bottom line is that, assuming further credit losses from global recession take U.S. and EU tier-one bank capital back to where it was before state injections and capital raisings, then financial-sector credit would have to shrink 37% just to keep leverage constant at precrisis levels — that’s how you get global depression.

But government is now part of bank management. Government intervention could manage to limit the credit decline to less than 10%, at the cost of more capital injections, further longer-term guarantees of liabilities, tolerance of higher leverage within socialized banks, and not a little credit “dirigisme,” i.e., directing banks to lend.

This will avoid the global depression that many fear, but at the high long-term cost of a socialized financial system. And it still heralds a very long, gray, global recession as the world learns to use less capital to meet its needs.

I haven’t seen anything published on the Journal editorial/op-ed pages that articulated even the possibility of a “depression,” much less a “global” one.  As recently as this past Spring, they were still publishing op-eds saying the economy was fine and would continue growing.

I caught a little flack back in March ‘07 when I published an op-ed that mentioned the “D” word.  Still, I concluded that the worldwide economy was probably too strong for another G.D. to occur.  I hope I was right.

Posted in Economy, bailout, banking, bubble, credit crunch |