Yesterday, April 23, economist Dr. Mark Skousen was at Yale University, and spoke before a standing-room only crowd of MBA students about his new book, “EconoPower: How a New Generation of Economists is Transforming the World” (Wiley & Sons, 2008).

The discussant for the book was Robert Shiller, the most in-demand professor of economics in the Yale School of Business, and for good reason. Shiller has had an uncanny ability to forecast the direction of both the stock market and real estate.

In early 2000, he predicted the collapse in the Nasdaq stock market, and in 2005, he warned of an impending implosion in the U.S. real estate market.

An entire chapter of “EconoPower” is devoted to Shiller’s remarkable ability to see into the future. But it wasn’t that chapter that Shiller talked about…

Is Another Great Depression Possible?

He focused on the chapter called, “Is Another Great Depression Possible?” In it, Skousen makes the bold claim that we are no longer “depression proof,” and that there are three potential scenarios that could threaten the foundation of our monetary system.

The third scenario is "a series of unexpected events that could trigger a major financial accident - a run on the dollar, a real estate crisis, a major terrorist attack, or a natural disaster that could overwhelm the monetary authorities."


Shiller, who publishes the famous Case-Shiller Home Price Index, stressed that the real estate crisis could be so severe that the Fed would soon have to take additional measures to counter the collapse. He told Skousen that he is writing a book about the subprime lending scandal, and how it will affect the economy. In his view, the housing crisis is far from over.

Shiller notes with no particular surprise that the headlines keep rolling in: Housing sales plummet, prices fall, inventories grow and foreclosures skyrocket. According to Shiller, there is still no evidence that the bottom has been reached.

Then he shocked the entire audience when he predicted “the Fed will be forced to cut rates to ZERO!”

Shiller is convinced that the real estate market is so big and potentially unstable that it will test the will of Ben Bernanke to the extreme, and that all previous efforts - the aggressive cuts in the Fed Funds rates, the injection of new liquidity (M2 is growing at 16%!) and the bailout of Bear Stearns and other major financial institutions - are just not enough.

Great Depression-like actions will be necessary to keep the economy afloat.

Will the Fed be able to turn the tide? Shiller believes another Great Depression is still “unlikely,” and that the tools to stabilize the monetary system, albeit artificial, are sufficient to keep a collapse from occurring.

But it won’t be easy.

For more articles on real estate see BarterNews.com “real estate section”…
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This entry was posted on Thursday, April 24th, 2008 at 3:50 pm and is filed under From the Desk of Bob Meyer. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.