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Economist Duncan: Next Depression May Be So Severe We May Not Survive

By    |   Tuesday, 17 July 2012 07:55 AM

The current financial crisis may spark a new depression "so severe that I don’t think our civilization could survive it,” warned economist Richard Duncan, author of "The New Depression."

Governments in developed countries should borrow “massive” amounts of money at the low interest rates currently and invest in new technologies so that trade comes back into balance, he said.

“In order to understand this crisis, it’s necessary to understand the role that credit has played in bringing it about,” he told CNBC.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

“When we broke the link between money and gold, this removed all constraints on credit creation,” Duncan argued. “This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression.”

Duncan noted that policymakers believe that if they allow credit to contract, there will be a new depression.

“So they are going to do whatever it takes to keep credit expanding,” he added. “And that means more quantitative easing (QE), and when the Fed does QE3, everyone knows that stock prices are going to go higher," he said.

“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it,” Duncan noted.

To prevent the credit bubble from bursting, he suggests that governments borrow money to invest in new technologies, such as renewable energy and genetic engineering.

“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.

The recent stimuli from central banks seem to be just prolonging the inevitable depression, Richard Nightingale, economist and strategist at RND Associates, told CNBC.

“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Nightingale said.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he stated, noting that when central banks realize what is happening and increase interest rates, the world economy gets thrown into a depression.

“You can defer, but not prevent,” Nightingale added.

A Gallup poll earlier this year showed that 46 percent of Americans see the United States as being in a recession or even a depression. However, 40 percent said the U.S. economy was growing. An additional 13 percent of those who saw the economy stuck in a downturn said the economy is slowing even further.

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Tuesday, 17 July 2012 07:55 AM
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