Microsoft Chief Executive Steve Ballmer sketched a dire portrait of the world economy on Friday, likening it to market conditions in 1837, 1873, and 1929, each of which involved bank failures, high unemployment, and a depression.
"This is a once-in-a-lifetime economic crisis," Ballmer told a retreat of House Democrats in Williamsburg, Va. "There is a lot of history around that, and frankly if you stop and think about it, 1837, '73, '29, 2008, it's almost exactly a whole lifetime between each of the major economic difficulties that we face."
Ballmer said that economic growth in the last 25 years was fueled by innovation, globalization, and debt--and that the current levels of debt were unsustainable. "In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent," he said. "Last year, private sector debt as a percentage of the GDP: 300 percent, far more leverage."
His warning of a protracted downturn that could become a depression comes amid a stock market that is down by more than 40 percent from its October 2007 peak, and housing prices in many metro areas that have been falling consistently since July 2006--a feat not equalled since the Great Depression.
"In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
On the other hand, even after this week's unemployment reports, the U.S. unemployment rate remains at 7.6 percent, lower than where it was in 1975 and 1992, and far lower than 10.8 percent in 1982. Figures before 1940 involved more estimation, but Census Bureau data put the unemployment rate in 1938 at 19.1 percent.
"PC sales (are) discretionary in most home budgets, the second, the third PC," Ballmer said, adding that Microsoft nevertheless will continue to spend more than $9 billion a year in R&D. "Consumer electronics has that characteristic. Fifty percent of capital spending in this country is on information technology. Less capital, less spend on information technology. No sector will be immune."
Microsoft shares have fallen by about half since the fall of 2007, a steeper fall than the Dow Jones index but in line with the tech-centric Nasdaq.
Democrats in the audience applauded when Ballmer endorsed the so-called stimulus legislation currently being considered by the U.S. Congress, saying it is "vital" and "will provide a cushion as we reach the reset point and it will help restart our economic engine."
He didn't go into details or address some of the allegations of wasteful government spending that have imperiled the bill's passage in the Senate as its size swelled to nearly $1 trillion. Senate Democrats said on Friday night that they might whittle down the revised version to $780 billion, still much higher than the $300 billion figure that was proposed as recently as October.
Ballmer said that while he distinguishes "private debt and government debt," there "certainly has been too much use of debt" in general. The stimulus legislation will be paid for by the U.S. Treasury borrowing money and running up debt, largely from other countries such as China.
After offering dark comparisons to history's depressions, Ballmer ended on a positive note, saying the United States has the right combination of talent and potential for innovation to succeed, especially if more tax dollars are spent on basic research and development.
This is, he said, "a once-in-a-lifetime opportunity to think about our priorities again and make the investments that put us on the right foot."