Peter Boone, Simon Johnson, and James Kwak at The Baseline Scenario are out with their revised economic outlook.  It is well worth a read.  We do find one quote about the financial sector to be disturbing to us:

“The core problem is that large segments of the financial sector are insolvent, or that many market participants believe that large segments of the financial sector are insolvent.”

Well, which is it?  The two ARE NOT equivalent.  The banks can pay their debts or they cannot. It seems even the wise men at Baseline are confused about whether the problem is one of perceptions or reality. The government’s efforts to manipulate perceptions by manipulating information releases will ultimately fail to turn us around (without major pain) if in fact, “large segments of the financial sector are insolvent”.  If, however, the  insolvency of the sector is only an incorrect, overly-pessimistic perception of the public that can be set aright by our benevolent government slowly “leading” us into the light of day thru careful propaganda, then their efforts will ultimately be successful.

We think the situation is real insolvency and not perception.

2 Comments on “Baseline’s new outlook, perception or reality?”

  • Bob Winners says:

    “The core problem is that large segments of the financial sector are insolvent, or that many market participants believe that large segments of the financial sector are insolvent.”

    This is the core of the problem. Faith, or
    trust or belief; whichever you wish to call
    it. Personally, I think take Bernanke at his
    word. The Fed will continue to flush the US
    (and world) economy with money in order to
    prevent deflation and the resulting economic
    collapse.
    And, ultimately, I think the world will go
    along for the ride. I don’t see winners any
    other way.

  • Thanks a lot for that article.Truly thank you! Really Great.

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