More and More Experts Paint a Bleak Picture for the U.S. Economy


Over the last several weeks, various noted economists and financial experts have opined that significant problems will continue to confront the U.S. economy in the months ahead. Moreover, most of these economists and financial experts expect that tough economic times lie ahead for most of the major economies in the world.

The mood was particularly dismal at a recent conference in Germany featuring 14 Nobel Laureates in Economics. For example, Nobel Prize-winning Economist Myron Scholes told the audience that the credit crisis “is not over and I’m not exactly sure when it is going to end.” Daniel McFadden, another Nobel Prize-winning Economist, stated that “as the crisis continues, you will see a lot of business failures.”

Other economists share these views. Kenneth Rogoff, former chief economist at the International Monetary Fund, was particularly negative. Rogoff stated in an interview “the worst is yet to come in the U.S. The financial sector needs to shrink; I don’t think that simply having a couple of medium sized banks and a couple of small banks going under is going to do the job.” Rogoff, who is also an economics professional at Harvard went on to say that “we’re not just going to see mid-sized bank go under in the next few months, we’re going to see a whopper, we’re going to see a big one, one of the big investment banks or big banks.” Similarly, New York University economist Nouriel Roubini believes that the U.S. will experience an 18-month recession that will rank as the “worst since the Great Depression.” He expects that job losses and bankruptcies will continue to impact the economy for years.

This view is also beginning to be shared by various brokerage firms and investment professionals. Richard Bernstein, Merrill Lynch’s chief investment strategist recently called the credit crisis “broad, deep and global” and “far from over.” Bernstein told Merrill clients that “investors are significantly underestimating both the scope and the extent of the credit bubble and the consequences of its subsequent deflation.” Goldman Sachs, another respected Wall Street firm, has reached much the same conclusion. Goldman Sachs economists recently concluded that countries that account for almost half of the world’s economy face recession. Almost simultaneously, Goldman Sachs slashed its earnings outlook for 5 major U.S investment banks, including Citigroup, JP Morgan Chase, Lehman Brothers, and Morgan Stanley. In Goldman’s report, the firm concluded “Tides are not changing; more write downs and asset sales to come.”

These reports suggest that both the economy and the markets will remain fragile and volatile in the months ahead. Investors need to carefully consider these opinions when analyzing their portfolios and evaluating their own individual courses of action.