U.S. News & World Report Editor Compares Credit Crisis to the Great Depression
It's no longer enough to say the economy is heading into or already is in a recession. Invoking the memory of the Great Depression has become the latest way to dramatize the economic turmoil caused by the credit markets.
"[I] think we are facing the worst financial crunch and crisis since the Great Depression," Mort Zuckerman, editor-in-chief of U.S. News & World Report, said on the January 20 "McLaughlin Group."
Zuckerman told viewers we're heading into uncharted territory with this current credit freeze-up.
"You have the entire banking system now that is virtually frozen. And there are, not just this subprime mortgage thing, there are other things called credit default swaps where they will lose as much money, $250 billion on. The banks are frozen. They are not making loans because they have such huge debts that they have to take on to their balance sheets and nobody knows how to deal with that," he continued.
While the financial sector is seeing problems with tightened credit, Zuckerman's reference to the Great Depression could lead viewers to think that the economy is heading toward a depression.
The U.S. economy overall does not appear to be headed for another Great Depression. For the last two quarters, gross domestic produce (GDP) has grown at a rate of 3.8 percent in the second quarter of 2007 and 4.9 percent in the third quarter. Fourth-quarter GDP numbers for 2007 will not be released until March. Unemployment in the U.S. is also relatively low at 5 percent.
Even the somewhat gloomy forecast from Goldman Sachs Group, Inc. (NYSE:GS), a Wall Street investment bank that has avoided the worst of the subprime mortgage losses, said on January 9 the recession they are predicting would be brief - certainly a far cry from a depression.
"One silver lining is that the recession is likely to be relatively mild by historical standards, with a cumulative contraction in real gross domestic product of only about 0.5%," said a Dow Jones report about Goldman Sach's prediction. "And the economy will eventually walk out of the recession and gradually recover in the course of 2009."
Despite that, strong bearish opinions on the economy as well as parallels to the Great Depression have been cropping up recently in media reports including a January 16 "CBS Evening News" story. That night CBS correspondent Anthony Mason compared problems in the financial sector to banking problems around the Great Depression.