WHEN WILL THE RECESSION END?
“When will the global recession end?” It’s a question on a lot of minds as the global downturn touches more and more communities with unemployment and financial losses, factory bailouts and closings, and mortgage meltdowns and credit crunches. Students in Perm and Chelyabinsk asked this question to Dr. James Barth, an expert on global finance. He is well qualified to answer the question, teaching as the Lowder Eminent Scholar in Finance at Auburn University in Auburn, Alabama, and specializing on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. He is also the Senior Finance Fellow for the Milken Institute, an economic think tank in California. He has served as a financial and economic consultant for several U.S. presidential administrations, the IMF and the World Bank, as well as private and state enterprises in China, India and Indonesia. Dr Barth has authored several books on global finances, including his latest The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown published by John Wiley & Sons in April 2009. More information on Dr. Barth can be found on his home web page: http://business.auburn.edu/~barthjr/.
On May 25 Dr. Barth spoke to a full hall of 150 students and professors at the Faculty of Economics of the Perm State University. The following day he spoke to 100 students and teachers from several faculties at the South Urals State University in Chelyabinsk. He also spoke more informally at the American Corners in both cities. Dr. Barth’s university lectures contrasted the current financial crisis with the Great Depression of the 1930s, comparing the economic policies of Presidents Franklin D. Roosevelt and Barack H. Obama. His conclusion was that while the practice of government intervention in a struggling economy was similar in both periods, the extent of the crisis was much more severe during the Great Depression. The Great Depression took 25 years to recover stock value, caused 25% unemployment in the United States and 80% of stock values crashed in a single day, compared to up to 45% loss in today’s market. He explained that financial crises occur in cycles and downturns can evolve over several patterns and time periods, including a speedy “V” formation of decline and rise, a slower “U” recovery, and a volatile “W” cycle of rising and falling strengths and weaknesses that can continue for several years before stabilization.
Dr. Barth’s detailed response may not have satisfied all the questioners, but the content was fascinating. Although the exact timing of the current global recession is difficult to calculate, according to Dr. Barth every crisis has an end. He traced the start of the current downturn to the loss of investment confidence following the housing collapse in the United States and the bankruptcy in March 2008 of the Bear Sterns investment bank that had traded heavily in mortgage securitizations. He referred to “Ninja loans” where high risk, sub-prime mortgages were assigned without sufficient collateral to borrowers with no jobs and no assets and then bundled into securities that were sold around the world to disperse the risk. The complexity of credit default swaps and other financial derivatives and their effect on the current crisis was discussed with several students and professors. Dr. Barth also argued that while the banking industry was actually over-regulated following the Savings and Loans crisis in the 1970s, the enforcement of those regulations was negligible. He described the world’s economic woes as the result of a “perfect storm” of economic forces and indicators that would result in radical economic reforms around the world. Arriving shortly before the SCO summit in Yekaterinburg, he pointed to the BRIC nations (Brazil, Russia, India and China) as potential leaders in the global recovery due to their younger work forces and dynamic entrepreneurs. In his opinion the key to Russia’s future success was the effective management of a highly educated human capital and vast natural resources. He assured his audiences however, that the United States was not abandoning capitalism or embarking on a socialist path, and would always pay its debts.
Dr. James Barth’s Russian tour, which continued to Moscow, was sponsored by the State Department’s U.S. Speakers Program and hosted by the Public Affairs Section of the U.S. Consulate General in Yekaterinburg. The cooperation of the Perm City Administration’s Committee of International Relations, the Perm State University and the Southern Urals State University was gratefully appreciated by both the Public Affairs Officer and the Speaker as was the high caliber of student participation in the discussions.