Tom Ferguson: Obama must do something bigger and bolder or another deadly round of crisis will follow
PAUL JAY, SENIOR EDITOR, TRNN: Thanks for joining us again on The Real News Network. We continue our series of interviews with Tom Ferguson on Barack Obama’s plans for the economy. Thanks, Tom. So we’re talking about the stimulus package not being big enough; we talked about the bank reform not being much of a reform. I think you used the phrase once, I think, off-camera, “Save the bankers, not the banks.” And this is what’s wrong [inaudible]
TOM FERGUSON: Well, yeah. Well, they need to save banks and not bankers, and they’re doing the reverse. You know.
JAY: So, if you’re correct, what does the economy look like in the next five years?
FERGUSON: It just sort of limps along. I mean, presumably, I mean, there is a stimulus program, so we’ll get off the bottom. But, you know, there’s an aspect of this we haven’t discussed; and it’s important, if you’re going to try to do some kind of forecasting, to think about it; which is, what you see happening in the US, which was folks think about a stimulus, and then they come in with an inadequate proposal which is criticized and cut down, that’s happening in every country on earth. It’s happening in Europe, all over. It’s happening in Japan. China is—I mean, they actually talk big, but, you know, my take, along with a lot of other people, is that the actual amount they’re spending is considerably less than what they say. It’s not that much new money. On the other hand, they are making a fairly large effort in terms of the GDP. Anyway, the bottom line here is, therefore, in maybe 120 countries or more, they’re all pulling up short. So the global problem here is fairly acute.
JAY: “Pulling up short” meaning [inaudible]
FERGUSON: They are all—everybody’s stimulus program is not enough for their own country. Sum that up in the world and you begin to get a really scary shortfall.
JAY: Now, the reason, they’re saying, is that the potential inflation that will come from what they’re saying is the debasement of the currency is such a threat that you can’t go for it.
FERGUSON: Well, look, there are all kinds of arguments that you see. The one you hear is, yeah, it’s usually some form of “We can’t borrow more.”
JAY: Or they’re afraid it turns into just printing the money.
FERGUSON: Yeah, but, you know, that stuff leaves me cold. You look in the Depression, you got the same objections to the New Deal. The one thing you learn from sort of plain old Keynesian economics was that there was one great way to run a budget deficit: just run below full employment for a long time. Boy will that make your deficit mount. In that sense, claims that—I mean, I’m not sympathetic to claims about how budget deficits will be terrible. You want to close a budget deficit? Put people back to work.
JAY: But let me play the other side. The argument will be just putting them back to work by printing money is different than putting them back to work, because a real economy is the goal.
FERGUSON: No. You don’t—well, actually, you can print money for awhile. It’s not—I mean, the Fed’s quantitative easing, which is printing money (that’s the long and short of it), that makes perfect sense. You’re not going to get inflation out of that, because the economic turnover that is happening with all that money is very little. I mean, put in other words, money times velocity is just not interesting yet. It’s not moving around much. Obviously, if the economy starts to pick up, then the Fed needs to withdraw some of that monetary stimulus. They’re aware of that. Now, I think Bernanke and others could help us all by sort of just outlining clearly how they do it. I mean, the standard objection on this runs something like this. The Fed used to have mostly Treasurys in its balance sheet; now they’ve got all this junk. They used to just sell Treasurys to pull cash in. They’re not going to be able to turn that trick. They are not going to sell that junk to the folks that they’re trying to help buy the junk with. So what are they going to do? And the answer is it’s going to end up somewhere in the US Treasury, or in the FDIC, or some which just borrows from the Treasury. But, you know, it would help, I think, if they outline an exit strategy. There are folks saying—I mean, I’ve heard the objection, “Well, that just scares people.” Nah. You could just sort of say, okay, this is roughly what we do. I am not—I don’t take seriously yet—I don’t see any signs yet of a high-inflation. And you notice, I mean, the folks who were saying inflation is right around the corner are also talking about how the dollar’s in imminent danger of dropping off a cliff, when in fact the world’s been buying dollars for a long time now, and the demand for the dollar’s been real high. Since this crisis started, you know, as a whole, it’s way up.
JAY:The Chinese have talked about some kind of international currency or some way to have a financial system that isn’t based on the US dollar. Certainly, the Chinese are holding a lot of US dollars, so they can’t precipitate some kind of sell-off of US dollars, but they’re getting nervous, it seems. Is there some point where people say the US economy is all being—as they say, the lifeblood is artificial, just printing money?
FERGUSON: Could you have a dollar crisis? Sure. Are we anywhere near that? No, I don’t think that. And, frankly, what I think is going to happen is this. The US will probably recover. And I expect a slow recovery, and one where the private-sector weakness is pronounced. On the other hand, the US’ll probably recover ahead of the rest of the world. That’s likely to lead to a capital inflow.
JAY: Some people are suggesting the capital inflows into the US in fact are exaggerating the problem, and all the global markets are going to get so weakened.
FERGUSON: Well, it’s clearly a problem with refinancing the third world that—I mean, that’s clearly a major problem is that, I mean, the folks that need money in the periphery can’t get it. One hopes that the G20 would do something besides—. And the G20 needs to do several things. They actually—.
JAY: It’s coming up in a few days.
FERGUSON: Yeah. Yeah. They need, obviously, to work on a plan to get financing to the third world. It would be nice if they did an economic stimulus program that was transnational. I mean, the US request on that is not crazy. And it would also, however, be nice if they took the European cue and actually re-regulated the financial markets, which the US folks are using the stimulus demand to block. I mean, they’re effectively trying to just crowd that off the agenda by talking stimulus all the time. They don’t want re-regulation in a serious fashion.
JAY: But let’s back up. So the stimulus package, in your view, is not enough.
FERGUSON: It’s not enough. And the financial—.
JAY: So what happens?
FERGUSON: So, well, you just—things don’t work very well. You get Japan in the ’90s.
JAY: Are we getting getting double-digit unemployment in the United States? Do we start seeing—?
FERGUSON: I expect you’ll see 10 percent unemployment, and it’ll probably take a long—. What I expect you’re going to get is something like—remember the jobless recovery of the early ’90s, coming out of the last little credit crunch? I mean, that was the Resolution Trust S&L crisis. This one’s a lot bigger, but I expect you’ll see the same type of very slow growth, with job growth lagging behind, you know, the feeble economic recovery. That’s what I think you’re going to get.
JAY: You don’t think we’re heading into something that one would call a Depression?
FERGUSON: You could. Look, if these guys—one assumes that sometime soon they’ll have to admit that the Geithner program is not working and go to something bigger and bolder. If they don’t, and, you know, they just limp along with bank—. Look, if banks aren’t making new loans and you’ve got an anemic recovery from an inadequate economic stimulus, you’ve obviously got a formula where you get another shock, something else happens, you know, Eastern Europe collapses or something,—
JAY: Which is happening.
FERGUSON: —which may well be happening, then you can get another deadly round. I mean, I’ve done a lot of work on the Depression, and, you know, the thing that impresses you there is the sort of multi-tiered thing of it, where you’d think in 1930 it’s bad, hey, it gets a lot worse in 1931, and then in ’32 it just keeps going down and down too, and, you know, you ultimately end, in the US, with all the banks closed when Roosevelt comes into office. You know, it could be that the whole system could stop just like that, though I doubt it. I mean, my sense is that the combination of what the administration’s been doing, this so-called ring fence, when they guarantee assets, and these schemes for getting money into banks probably prevents, probably—I mean, if you won’t get arteriosclerosis of the banking system and it actually come to a halt, it’ll just sort of—the patient will be feeble, but not dead.
JAY: In the next segment of our interview, let’s talk a little bit more about your ideas about the buying of the presidency.
JAY: Please join us for the next segment of our interview with Tom Ferguson.