Holy bummer, Batman! This is from a week ago, but it’s not like the prediction is now out of date (particularly with the DJIA losing nearly 500 pts. today and finishing below 8000 for the first time in five years):

The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.

Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.

“I think it would be worse than the depression,” Whitehead said. “We’re talking about reducing the credit of the United States of America, which is the backbone of the economic system.” Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

Whitehead warned the country’s financial strength is at risk due to the sweeping demand for tax relief and a long list of major government spending plans.

“I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America,” said Whitehead…

…

He warned that the country’s record deficit is poised to balloon as the public calls on government for more support.

“Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds,” he said. “Eventually U.S. government bonds would no longer be the triple-A credit that they’ve always been.”

There are at least ten “trillion dollar problems,” facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

“The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs — all very costly and all done by the government,” he said.

Large deficits can weaken the country’s credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take “several years” for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

“I just want to get people thinking about this, and to realize this is a road to disaster,” said Whitehead. “I’ve always been a positive person and optimistic, but I don’t see a solution here.”

This guy was a bigshot at Goldman Sachs, which means either that as a clever financier he knows what he’s talking about, or he’s a fucking idiot, as it was clever financiers who got us into this mess in the first place.

But what he says sounds plausible enough. The US financial house is completely out of kilter, and there seems to be no willingness in Washington to face up to the realities of the situation.

Let’s hope he’s wrong. If not, we’re in for a heaping helping of “Oh, my God!”

[This conceivably viable subsidiary was auctioned off cheap by the bankruptcy court now overseeing the Ch. 13 proceedings going on over at Keyser's Lair.]

This entry was posted on Wednesday, November 19th, 2008 at 9:44 pm and is filed under alchemy for investors. 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.