Are we in a deep hole that the entire world could fall into?

Jeff Garten, the Dean of Yale School of Management when I was there, and now a Professor of International Finance there, was quoted via a recent NYTimes Thomas Friedman oped:

“A great judgment has to be made now as to just how big and bad the situation is.. This is a crucial judgment. Do we think that a couple of hundred billion more and couple of bad quarters will take care of this problem, or do we think that despite everything that we have done so far — despite the $700 billion fund to rescue banks, the lowering of interest rates and the way the Fed has stepped in directly to shore up certain markets — the bottom is nowhere in sight and we are staring at a deep hole that the entire world could fall into?”

If it’s the latter, then we need a huge catalyst of confidence and capital to turn this thing around. Only the new president and his team, synchronizing with the world’s other big economies, can provide it.

“The biggest mistake Obama could make is thinking this problem is smaller than it is. On the other hand, there is far less danger in overestimating what will be necessary to solve it.”

Freidman is calling for Obama’s proposed Treasury Secretary Tim Geithner to be appointed immediately, to reduce uncertainty in the markets. Hew’s the second serious writer I’ve seen recently, after David Brooks, to wistfully call for Obama to start now and for Bush to step aside. (It cannot happen).

I can’t help think that New Zealand’s election happned after the USA’s, and we now have a functioning new Government. I also cannot help remember how disastrous the transiton from Muldoon to Lange was back in 1984, and how we in NZ learned from that lesson. A 2 1/2 month transition for the US is simply ludicrous, especially given that the old and new Presidents meet for an hour only. The transition between Clinton and Bush II was particularly galling, with years of good works tossed away. To Bush’s credit the news from the Bush II to Obama transition has been good to date.

Published by Lance Wiggs