• Latest News
  • Pitch a Story
  • Work with a Journalist
  • Join the Blog Squad
  • Afghanistan
  • Africa
  • Asia
  • Baltimore
  • Canada
  • Egypt
  • Europe
  • Latin America
  • Middle East
  • Russia
  • Economy
  • Environment
  • Health Care
  • Military
  • Occupy
  • Organize This
  • Reality Asserts Itself
  • US Politics
  • Meltdown on Monday

    Rob Johnson: Fear of recession real cause of stock market crash -   August 8, 2011
    Members don't see ads. If you are a member, and you're seeing this appeal, click here


      Share to Twitter
    Share to Facebook

    I’ve made my way to my current internet haven: The Real News Network (TRNN). - Caroline Lewis
    Log in and tell us why you support TRNN


    Rob Johnson is the Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute's blog NewDeal2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform. Previously, Dr. Johnson was a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the US Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.


    Meltdown on MondayPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. It was meltdown on Monday, stock exchanges around the world. The New York exchange apparently lost about $1 trillion on paper. Are we poised for a spiral into deeper recession? Or is this a blip in the markets? Now joining us to unpack all this is Rob Johnson. Rob was a former trader on Wall Street. He's now a senior fellow at the Roosevelt Institute. Thanks for joining us again, Rob.


    JAY: So unravel for us. S&P does this downgrade on Friday. Most of the markets dismiss it as having any real significance. Nobody thinks the US is actually going to default on its debt. On the other hand, Monday, the big institutions jump in, selling off. Why?

    JOHNSON: Well, the why is we just created a contractionary debt deal with a super committee going to meet to cut more out of the economy, where one in six people is unemployed. We're putting austerity into a slump. It's absolutely dreadful, foolish macroeconomics. And now it got blessed by the S&P, proving that two wrongs can never make a right.

    JAY: Now, how much this has--does this have to do with an underlying fear that what's happening in Europe is going to continue to unravel? There's talk about--a nice term I heard on TV today from one of the money managers is sovereign raiders, the next target being Belgium. And there's even talk about France. What does this mean?

    JOHNSON: What I would say is that the anxiety about Europe and contagion like Lehman Brothers was contagious in 2008 all around the world, people are very concerned that our out-of-control, too-big-to-fail financial institutions are so intertwined that someplace the size of the state of Rhode Island or Nevada can propagate through the entire planet. People have been concerned about Greece. When you step up to Spain and Italy, it gets bigger and it gets wilder. United States has been decelerating. It didn't do enough or long enough stimulus. We didn't orient the stimulus towards things like investment in productivity that could pay back that debt in the long run. And when we gave up the ghost and Obama lost the midterm election, capitulated into this austerity agenda, you drop a contagion banking crisis on top of that debt deal and the whole world starts to melt down.

    JAY: Now, on top of the austerity agenda, is there also an agenda that some of the big players make money out of these big downward spirals, that they play volatility? I was talking to a commodities trader the other day, and he says one of the things that isn't getting talked about enough is how the big players in the market can sustain these big downward turns, and they wind up sitting on--they go into them sitting on cash, and then, when their smaller competitors get really demolished, they make money going short. They make--then they take all this cash and they buy back in and pick up bargains. And so some of this is actually--I don't know; what's the word?--deliberate.

    JOHNSON: You might call it the children of Andrew Mellon, whose famous quote was liquidate, liquidate, liquidate. There are no question that there are lots of very smart bearish people with lots and lots of cash who will benefit from, what you might say, buying everything at half-price. It's like America goes on sale, Portugal goes on sale, Ireland goes on sale, Greece goes on super sale. Anybody that has big cash, anybody that can squeeze a governor in Wisconsin or California or any of these other states, can extract an awful lot and buy things at a very profitable level if they can keep the pain threshold up.

    JAY: Yeah, that's something that's not being talked about again on TV very much. The people are talking about how the federal government can print money and one way or the other will pay off its debts, and that interest rates are going to be very low on federal Treasury bonds. But that's not the case for cities, for municipalities and states across the country, is it?

    JOHNSON: They don't have a central bank that issues state currency. So they can issue debt, but they can't, what you might call, validate that debt in the way that Alan Greenspan explained on Meet the Press this weekend, that the United States can by running the printing press. The United States will not default. But the United States can't push on a string, either. Ben Bernanke can try all he wants, but until we come out of this madness with regard to fiscal austerity in America, we won't--. What we need right now is an infrastructure bank, education spending, science spending. What we need is infrastructure modernization, things that attract private investment. That requires a big retooling, like a Reconstruction Finance Corporation, like the building of the Erie Canal, like all the things that Felix Rohatyn wrote about in his last book. And none of those things are even on the drawing board right now, even though Obama told us it was a Sputnik moment. We are failing in a bipartisan way.

    JAY: So what do you make of what we should be doing? I mean, we're--the rest of us, most of us are going to be affected by all this. How serious do you think this is going to get? And what should we be doing, demanding?

    JOHNSON: Well, this evening, since I came home for this interview, I've had friends, old friends from the Middle East, from New Zealand, from China, and from France call me and ask exactly that same question. I think very intelligent investors, very intelligent policy analysts can see the gridlock in the United States, the austerity and turmoil in Europe, the reluctance of the Germans to fulfill their guarantee that they made years ago. They--as you and I talked about before, they wrote an insurance policy, they collected the premiums, but they don't want to pay out now that there's an accident. You see the Chinese turning inward. You don't see their exchange rate appreciating in order to take pressure off of manufacturing all around the rest of the world. It's every man and every woman for themselves. This is a system that's disintegrating right now. I do think we are potentially on the cusp of a downturn and a multicountry, self--how you say?--mutually reinforcing downturn that could be quite a bit like the 1931 banking crisis that led to the Great Depression, or, alternatively, in the United States, like 1937, when the orthodoxy won over Franklin Roosevelt and set us down for a second deep dip that wasn't quite as severe as the early '30s. But it was unnecessary, just like what's happening in America right now isn't necessary.

    JAY: I mean, it's--from a political point of view, it seems almost weird that President Obama, who, if he goes into an economy--2012 with an economy like this, he ain't going to do very well. But he's not coming out swinging. He's still talking austerity and cuts. In the statement he made today, today being Monday, I mean, all he talked about was how S&P shouldn't have downgraded US debt, and Warren Buffett says it's really, you know, AAA or better, and so on and so on. There was no talk about any real stimulus program, and there didn't seem to be any sense from what he said of how serious the situation is. It was--it's all going to get better is what he was telling us.

    JOHNSON: Well, he's employed what George Akerlof calls the confidence multiplier many times, and it's blown back in his face because he didn't, what you might say, deliver on the goods. I think Barack Obama's in real trouble now. I think he's in serious trouble for his reelection. I think you can see third parties. I think you can see primary challengers. And just with the deceleration at--starting at 9 percent unemployment, just like The New York Times talked about today, the next downturn starts from a base of fragility, and that we didn't really recover and repair our balance sheets in the last shot that happened in 2008. [crosstalk] I was going to say, Barack Obama's in trouble. And he's got to act like he represents people. When you look at the budget polls, what the American people wanted to happen is not what happened. What the American people are talking about is getting out of wars. What they're talking about is raising taxes on the wealthy. What they're talking about is rebuilding the basic infrastructure. And that's not what's happening. And I won't blame Barack Obama entirely, but I will blame him in one respect. He did not pitch a fit. He did not go nuts about doing the right thing. He tried to act like a referee, like a moderator. And he actually concurs blessing on the reasonableness of crazy policies that emanate from people on the radical right, people who are good souls, who believe that the American government is an insurance agency for the rich and powerful and just want to cut him off. Barack Obama needs to work to illuminate and to educate the American people on the ways in which government can help them realize, how do we say, the benefits and the optimism of their livelihood on doing real things on their behalf. When 3 percent of the population's taking all the gains, when you've got to raise $1 billion to remain president, when the other side's gnawing at your ankles, it's a hard, hard job. And he's not even making the case. I'd rather see the guy go out in flames than go out with a whimper like it appears he's doing right now.

    JAY: Thanks very much for joining us, Rob.

    JOHNSON: My pleasure.

    JAY: And thank you for joining us on The Real News Network.

    End of Transcript

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


    Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at


    Latest Stories

    Affirmative Action Ruling Will Further Racial Inequality
    Evidence for Russian Involvement in East Ukraine Based on Shoddy Journalism
    Ivy League Study: The General Public Has Virtually No Influence on Policy
    The Modern History of Venezuela and Popular Democracy - Edgardo Lander on RAI (9/9)
    An Asia "Pivot" Should Mean Cooperating with China to Solve the Global Environmental Crisis
    Assessing the U.S. Environmental Movement
    Intimidation and Political Interference Goes Unpunished in UAW Case
    Exclusive Investigation Uncovers How BP Uses Bribes To Do Business
    The Modern History of Venezuela, The Protests and Democracy - Edgardo Lander on RAI (8/9)
    Greek Politics 4 Years After The Financial Crisis
    CBO Report Confirms U.S. Deficit Back to Normal Level
    Israel Uses Refugees as "Currency" in Arms Trade with Africa
    Who Will Pay for Climate Change Disaster?
    Canada Shifts to Right Under Harper, Mimicking the United States
    The Savings and Loan Crisis Demonstrates the Importance of Glass-Steagall
    South African Platinum Miner's Struggle Challenges ANC Leadership
    TRNN Original Report: Manning Determined to Fight Back After Army Upholds 35- Year Sentence
    Hundredth Anniversary of the Ludlow Massacre
    The Bundy Ranch Standoff Demonstrates Values Shared by Corporations and the Far Right
    The Resegregation of American Schools
    The Modern History of Venezuela, Why Still So Much Crime? - Edgardo Lander on Reality Asserts Itself (7/9)
    What Role Has Russia Played in Eastern Ukraine?
    Can Johns Hopkins Afford to Pay A Living Wage? (2/2)
    University Sit-In Targets World's Largest Private Coal Company
    The Modern History of Venezuela and the Need for a Post-Oil Economy - Edgardo Lander on RAI (6/9)
    Can Johns Hopkins Afford to Pay A Living Wage? (1/2)
    One Percent of Environmentalists Killings Lead to Convictions
    Investigation Finds Former Ukraine President Not Responsible For Sniper Attack on Protestors
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Ukraine Transitional Gov't Moves Militarily To Reclaim Seized Buildings
    IPCC Report Flawed By Narrow Focus on Carbon Emissions
    The Modern History of Venezuela: The Bolivarian Revolution - Edgardo Lander on Reality Asserts Itself (5/9)
    Obama Signs Directives to Reduce the Gender Wage Gap
    Eastern Ukraine Lacks Political Representation in Kiev
    Demystifying the Role of Mitigation in the Most Recent IPCC Report
    Hypersurveillance State Won't Prevent Another Boston Marathon Bombing
    The Modern History of Venezuela from 1973 to the Caracazo Massacre - Edgardo Lander on Reality Asserts Itself (3/9)
    Univ. of Maine Faculty Reinstated After Students Protest Against Cuts
    The Modern History of Venezuela from 1908 to 1973 - Edgardo Lander on Reality Asserts Itself (2/9)
    IMF Will Address Global Inequality, Says Managing Director Christine Lagarde
    Raising Big Banks' Leverage Ratio Good, But Not Nearly Enough
    TRNN Replay: Austerity Road to 19th Century
    Has Palestinian Maneuvering Revived Peace Talks?
    Late Jackson Mayor Lumumba's Son Wins Primary to Replace His Father, Runoff Election Ahead
    Quebecers Reject PQ and Elect a Liberal Government Representing Big Business
    TRNN Debate: Decriminalization vs. Legalization
    The Beginning of the Chavez Era - Edgardo Lander on Reality Asserts Itself (4/9)
    "Off With His Head": Court Upholds Obama's Power to Kill
    Workers at Nation's Top Hospital Strike For Fair Wages
    From Exile to Radicalization in Venezuela - Edgardo Lander on Reality Asserts Itself (1/9)
    Rwanda 20 Years Later: Genocide, Western Plunder of Congo, and President Kagame
    Ukrainian Protesters in the East Demand More Autonomy From Kiev Government
    Hunger Strikers Demand President Obama Halt His Record 2 Million Deportations
    Indian Parliamentary Elections - A Primer With Vijay Prashad
    West Looks to Carve Up Ukraine & Privatize Industries Held by Kleptocrats
    Where Are Israeli-Palestinian Peace Negotiations Headed?
    The Multiple Kingdoms of Saudi Arabia (5/5)
    Do the Afghan Presidential Elections Signify Progress?
    Republican Presidential Hopefuls Pay Homage to Billionaire Casino Tycoon Sheldon Adelson
    Will Extremist Lieberman Become Israel's Next Prime Minister?
    Why do the Saudis Want the US to Attack Iran? (4/5)
    Immigrant Advocates and Families Tell President Obama 'Not One More'
    Elections, Pipelines, and Protests - The Canada Panel
    Chris Hedges on "Israel's War on American Universities"
    Baltimore Residents Decry Lack of Affordable Housing
    Yellen Talks the Talk But Will She Walk the Walk?
    Hopkins Hospital Workers Speak Out against "Poverty Wages"
    Will Venezuela's New Floating Exchange Rate Curb Inflation?
    The European Central Bank's War on Wages is Pushing Europe's Economy to the Brink
    Supreme Court Decision Opens Floodgates for More Campaign Cash
    Charles Keating, the Financier Behind the Savings and Loan Scandal, Dies at 90
    Saudi Arabia and the al-Qaeda Monster (3/5)
    Maryland Residents Voice Opposition to Natural Gas Fracking Export Facility
    Supreme Court Ruling Gives Wealthy Individuals More Influence Over Elections
    What are the Saudis Afraid Of? - Madawi Al-Rasheed (2/5)
    Baltimore's MICA Adjunct Professors Set to Vote on Unionization
    Boycott of Israel Moving to Next Level?
    Hypocrisy Dressed Up as "Realism" Justifies American Alliance with Saudi Dictatorship
    Immigration Reform in the Shadows of Cesar Chavez's Legacy
    Leaked Senate Report Shows Use of Torture As "Ineffective"
    UN Report Says Climate Change Will Threaten Food Production Worldwide
    The Hypocrisy of US Calling for Enforcement of International Law
    How the Ecuadorian Economy Grew in a Global Recession
    'Shadows of Liberty' Trailer
    Kristina Borjesson on Why CBS Shut Down Her investigation into Flight 800 (2/8)
    Glen Ford on Racism in the American Media (3/8)
    Paul Jay on What Drives Corporate Media and What Drive The Real News (4/8)
    Creating a New Media Paradigm After Citizens United (5/8)
    Should The Left Engage with the Mainstream Media? (6/8)
    What Is the Financial Backing For The Real News? (7/8)
    Standing up to Character Assassination (8/8)
    Oligarchs, Fascists and the People's Protest in Ukraine
    TRNN Debate: Is Obamacare In the Interest of Workers?
    Too-Big-To-Fail Advantage Remains Intact For Big Banks
    Obama and the Saudi Agenda
    TRNN Replay: Investigating the Saudi Government's 9/11 Connection and the Path to Disilliusionment - Sen. Graham on Reality Asserts Itself pt 1
    The Iraq War's Real Legacy
    Petitions with 100,000+ Signatures Call for Snowden's Passport to be Reinstated
    We Need to Harness People Power - Andy Shallal on Reality Asserts Itself (4/4)
    BC Pipeline Fight and Quebec Elections - The Canada Panel
    Jonathan Schell - 1943-2014: Board Member of TRNN on Why We Need The Real News
    Teachers on Strike from the UK to Argentina
    Connecticut Poised to Become First State with $10.10 Minimum Wage
    Oil Spill Threatens Wildlife and Local Economy
    DC School Test Scores Up, But Poor Black Kids Are Doing Worse - Andy Shallal on RAI (3/4)
    Obama's Proposal To End NSA Bulk Data Collection Won't Protect Privacy
    How Google, Apple & The Biggest Tech Companies Colluded to Fix Workers' Wages
    An American Should be One that Questions Their Government - Andy Shallal on RAI (2/4)
    What's Driving Putin & Obama's Posturing on Ukraine?
    Hundreds of Students & Faculty Occupy College Campus to Fight Cuts to Public Higher Ed
    Due Process 'Impossible' In Harsh Death Sentencing Of Over 500 Muslim Brotherhood Members
    Has Anglo-American Capitalism Run Out of Steam?
    Being the "Other" in America - Andy Shallal on Reality Asserts Itself (1/4)
    TRNN Debate: Should Baltimore 'Ban The Box'?
    How Fallujah Became the Iraqi Government's New Battleground
    Why I Decided to Blow the Whistle on the NSA
    NASA Climate Predictions Show Serious Threat To Humanity
    Professor Who Teaches Israel-Palestine Conflict Accuses College of Violating His Academic Freedom
    CIA and NSA Wrongdoing Requires Independent Investigation, Says Former Church Committee Staff
    Are Tuition Breaks Enough To Combat High Student Debt And Low Graduation Rates?
    Industries Across the U.S. Are Stealing Wages From Their Lowest Paid Workers
    Who In Ukraine Will Benefit From An IMF Bailout?
    NSA Recording All International Calls From U.S.
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (2/2)
    BP Gets Green Light to Drill in Gulf, But Has Safety Improved?
    Residents Still Not Drinking Tap Water Two Months After West Virginia Spill (1/2)
    Libya's Descent Into Turmoil Three Years After NATO Intervention
    From Pipelines to Peladeau - Canadian Report
    Israel "Making Lives Miserable" for Africans, Hoping They 'Self-Deport' (1/2)
    Congressional Progressive Caucus Budget Strikes Back Against Austerity
    Libya Three Years Later - Chaos and Partition
    Why Was Gaddafi Overthrown?
    Should Ukraine and West Accept De Facto Crimea Joining Russia? (2/2)
    Tony Benn Saw Socialism as the Culmination of Democratization
    Why Didn't Bush/Cheney Attack Iran and Can Obama Make and Sell a Deal? - Gareth Porter on Reality Asserts Itself (3/3)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi? (2/2)
    Crimea Referendum: Self Determination or Big Power Manipulation? (1/2)
    Sen. Graham: President Must Side with Openness About CIA and 9/11
    Manufacturing a Narrative for War - Gareth Porter on Reality Asserts Itself (2/3)
    Protesters Hit the Streets of Brooklyn to Demand $15 Minimum Wage
    Hammer: 'Moral Bankruptcy' Behind Massive GM Recall
    White House Withholds Thousands of Documents from Senate CIA Probe
    I Grew Up Believing in Time Magazine's Version of America - Gareth Porter on RAI (1/3)
    Western European Banks Vulnerable to Ukrainian Sovereign Debt Crisis
    TRNN Debate: What's Driving Inflation in Venezuela? (2/2)
    CIA vs. Senate: Who Is Obama Protecting?
    Will Tipped Workers Get Excluded Again From Minimum Wage Hike?
    TRNN Debate: What's Driving Inflation in Venezuela? (1/2)
    After Late Mayor Lumumba is Laid to Rest, What's Next for Jackson, Mississippi?(1/2)
    TRNN Replay: A Look at Who's Poised to Become No.2 at the Fed
    How Right-Wing Nationalism Rose to Influence in Ukraine (2/2)
    Netanyahu Attacks Boycott As Campaign Enters New Phase
    Moving Towards a Police State - Michael Ratner on Reality Asserts Itself (7/7)
    Fighting Reagan's Secret, Illegal Wars - Michael Ratner on Reality Asserts Itself (6/7)
    Puerto Rican Independence Movement and Cuba Further Radicalized Me - Michael Ratner on RAI (5/7)
    The Butcher of Attica - Michael Ratner on Reality Asserts Itself (4/7)
    MLK and a Radicalizing Moment in American History - Michael Ratner on Reality Asserts Itself (3/7), Real News Network, Real News, Real News For Real People, IWT are trademarks and service marks of IWT.TV inc. "The Real News" is the flagship show of IWT and Real News Network.

    All original content on this site is copyright of The Real News Network.  Click here for more

    Problems with this site? Please let us know

    Linux VPS Hosting by Star Dot Hosting