Large U.S. Banks May Fail Amid Recession, Kenneth Rogoff Says

Another economist, this time Kenneth Rogoff from Harvard, piles on to say that the economy is headed downward. Economists are a lagging indicator. When everyone sells sell, it's time to think about buying.

Kenneth Rogoff from Harvard, the former Chief Economist of the Interational Monetary Fund said in a speech that the worst was yet to come in the United States.

"The worst is yet to come in the U.S... The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''

In an interview with Bloomberg, he said:

"Like any shrinking industries, we are going to see the exit of some major players...We're really going to see a consolidation even among the major investment banks.''

None of this portends well for the economy.  He went on to say that despite this glum economic picture he was worried about inflation.

``Rates are too low.  They (The Fed) must realize we're going to get inflation if things stay where they are. They need to raise rates but I don't think they are going to because they're way too nervous.'

This of course made me wonder.  How can we get inflation is the economy is so awful?  Won't slowing demand push prices down?  Won't unemployment limit the ability of employees to get raises?  Of course, commodity prices can continue to rise but even they will come under pressure as demand drops.  Look what's happened with oil.

Look for my article on Richard Fisher and his views for more on the relationship between a slowing economy and inflation.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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  • JRodgers

    August 20, 2008

    Rogoff is credible, unlike many of the other academics and commentators who make dire predictions for publicity sake. It is very, very difficult to dismiss what he says.

  • JRodgers

    August 20, 2008

    Incidentally, I agree with the principle that you want to buy when everyone is selling. You certain would have made oodles of money if you pulled this trade on the financials following the first Freddie and Fannie rumors around the middle of July. But, that principle doesn't always apply and I don't think it applies to financials right now. I think that those who try to nibble at financials here will be burned.

  • Sam Cass

    August 21, 2008

    You have to buy low. The trick is figuring out when things are low. When the everyone in the media starts to talk about things being low, give it 6 months and then start buying. We're reaching media saturation now.

  • thedorightman

    August 24, 2008

    MAY FAIL? AH HA HA HA HA HA HA HA....I'm going back to the BCC blog on Michelle Cabreras mammaries; at least they're real.

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