No, says Simon Johnson, a senior fellow at the Peterson Institute, professor at MIT’s Sloan School of Management, and co-founder of the popular economics blog, BaselineScenario. In fact, if we're not careful, we'll find ourselves in another Great Depression.
What it is time to do, says Johnson, is look at the credit markets, which are telling us that the major U.S. financial institutions are being hit with a "speculative attack":
“The view being taken by people who trade credit in the United States is that we’re definitely not out of the woods. And I would say, in fact, there’s something of a run taking place in the credit market. Not a traditional bank run, but a speculative attack on some of the biggest financial players ….”
Specifically, traders are shorting credit of major banks, betting that the government won't protect bondholders forever:
”Basically these people are betting the big banks will be forced into some sort of default. Now, if enough people bet that, and if the banks can’t draw on enough external support, which in their case would be from the U.S. government, then these runs can be self-fulfilling. It’s extremely dangerous and a situation that’s really not been addressed by the U.S. authorities.”
Professor Johnson doesn't believe another Great Depression is likely, but he thinks denying that possibility increases the risk of it. He says he's not trying to exaggerate but instead to urge policymakers address the facts and take corrective action.
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