“The Executive Guide to Economic Meltdown”

February 3rd, 2009: Dr. Hefner described today’s economic situation as a situation without historical precedent which makes forecasting almost impossible. “It’s like having a crystal ball with hurricane Hugo inside.” After a brief review of the “Long Depression” of 1873 that lasted 20 years, the 3 year depression of 1907, and the “Great Depression” of 1929, Dr. Hefner illustrated why the economy today is so difficult to forecast. He also provided a very thorough analysis of a Japanese depression that lasted a decade which was described as a financial disaster. A self-proclaimed empirical economist, Frank uses facts to formulate his forecasts. He drew a laugh from our audience when relating a story about a politician in Columbia who said, “we never thought about using facts.”

“We’ve experienced 26 years of economic expansion, and what works in booms may not work in busts.” Recessions magnify problems; a financial meltdown magnifies over-leveraging and weak business plans. What happens when all your assets are paper and no one wants it; or worse, only one person bids on it? What happens when you lending is based on that paper? You have a banking crisis. Dr. Hefner stated in the Great Depression our GDP decreased 25 percent and unemployment was above 25 percent. Consumer prices fell 25 percent and wholesale prices fell 32 percent … we’re not used to deflationary spirals.

He ended his talk with the question, “what will happen 5 years from now?” He emphasized Congress can only tax, borrow, and spend. In depression economics, they only borrow and spend. In the end, what will normal look like? No one knows what sustainable numbers will look like.

Reported by Bill Crowe, Keyway Committee Chair