I'm in Silicon Valley on Friday for the annual economic summit organized by Stanford University. Earlier in the morning, the government reported that the nonfarm payrolls registered the fastest rate of decline since 2003 and the markets predictably tanked. Good thing the Wall Street crowd didn't have a video link to the presentation by Havard professor (and ex-Harvard president and former Treasury Secretary) Lawrence Summers. Then they'd really bolt for the nearest bar.
"I believe we are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation--and possibly, much longer than that," said Summers, adding that the country has "never been in more need of serious economic thinking than we are now."
The technology industry is on hand to listen. If Summers is right, the economy already is in recession--even though he complained about a "regrettable reluctance in Washington to recognize the 'R' word."
He spent a good part of his talk riffing about the dislocations in housing and credit markets, pointing out that while home prices in the U.S. are down 10 percent nationally, the decline may continue another 15 percent.
"The current estimates of mortgage losses are $400 billion," he said. "Those estimates are substantially optimistic."
That was just a warm-up to really depress the audience of heavy-hitters assembled here. He talked about a series of vicious cycles impacting credit and spending.
As a former cabinet member in the Clinton White House, Summers was careful not to season his words with too heavy a helping of politics. (He even said he admired Milton Friedman!). But as far as a fix, Summers said Congress and the president may need to follow up the recent financial stimulus with another.
"It's a grave mistake to believe in the self-equilibrating properties of economies in the face of large shocks," he said. "Markets balance fear and greed. And when fear takes over, the capacity for self-stabilization is not one that can be relied upon."