'Prophets of doom' claim crisis warnings went unheeded
By Rob Lever, AFP
October 4, 2008, 10:23 am TWN
WASHINGTON -- The so-called "doomsday" economists long derided by the mainstream say the current financial maelstrom was inevitable, but debate is still raging on how the U.S. economy will emerge from the crisis.
The analysts who had sounded warnings about economic imbalances for at least the past two years argue that their forecasts are now coming true, and that things could get worse, despite reassurances from mainstream economists.
"Even though there were extraordinary excesses and imbalances in the U.S. economy and financial system coming into the spring of 2007, mainstream forecasters believed things would still work out OK because they had done so previously," said Michael Panzer, a former securities trader and author of a 2007 book aptly called "Financial Armageddon."
Panzer argues that he predicted the current "systemic crisis" but that this is just "the second of four stages" in the crisis.
"My belief was that this development would be the catalyst that transforms economic malaise into a depression — like we had 80 years ago," he said.
"I believe we are on the precipice of a lingering and painful deflationary downturn, which will last at least a few years."
Nouriel Roubini, a New York University economist dubbed "Dr. Doom," said he foresaw a crisis as early as 2006, when he predicted "a tsunami that will soon trigger an ugly recession" and "the biggest housing bust in the last 75 years."
Roubini contends "the current financial crisis is becoming more severe in spite of the Treasury rescue plan, or maybe because of it" and sees a "risk of a total systemic financial meltdown."
Peter Schiff, president of Euro Pacific Capital and author of a 2007 book "Crash Proof: How to Profit From the Coming Economic Collapse," said he had issued similar warnings.
"Once I saw what the government was doing to prevent the recession in 2001, I saw the housing bubble they were blowing up, and I started writing about the ultimate collapse," said Schiff, who also has earned the "Dr. Doom" moniker.
Schiff argues that the economy has moved from one bubble to the next and that government cannot prevent a painful correction but only delay it.
"The disaster is not that the economy is collapsing, it's that we built it on a phony foundation in the first place," he said.
"The whole economy is built around Americans borrowing money and spending it. We need to stop spending money and start making things."
Other forecasters have been expressing similar concerns. Morgan Stanley economist Stephen Roach, known for his longstanding bearish views, said in a research note last month that his pessimism now appears justified.
"At the root of the problem was America's audacious shift from income- to asset-based saving," Roach said.
"American consumers no longer felt they had to save the old-fashioned way — they drew down income-based saving rates to zero for the first time since the Great Depression. And why not? After all, they had uncovered the alchemy of a new asset-based saving strategy — first out of equities in the latter half of the 1990s and then out of housing in the first half of the current decade."