Niall Ferguson: Forget Gloom -- Think Doom!

Last Updated Sep 23, 2008 1:57 PM EDT

Niall Ferguson, the widely respected and controversial Harvard Business School economist and historian, has just penned in the Financial Times a rather gloomy prognosis for the US economy.

In short, Ferguson suggests that even as US lawmakers mull a $700 billion government-backed shoring up of the financial sector, there are six more shocks potentially coming to the economic system. The result? Forget recession -- that's a given. The question is, can we avoid a depression?

Here are some potential events on the horizon that could make today's situation worse, according to Ferguson:

  1. The possibility of more bank deaths, especially if the government plan is held up in debate.
  2. Credit default swaps market could seize up.
  3. Unaffected parts of the financial industry could still yet get sideswiped. To wit, "There are hundreds of billions of dollars in losses looming on corporate debt â€" almost as much as has already been lost on mortgage-backed securities," Ferguson writes.
  4. A likely US recession, beginning in the fourth quarter and continuing into 2009. Oh, and the dollar is probably going to weaken again, Ferguson says.
  5. The economic slowdown could become a global phenomenon, leading to violent financial reactions in emerging markets such as Russia.
  6. The presidential election will continue to unleash harsh rhetoric about the economy, further undermining investor confidence.
OK, so things are a little on the pessimistic side these days. But another Great Depression?
"There has certainly been a 1930s feel to this month's events," says Ferguson. "The nationalisation â€" or 'conservatorship' â€" of Fannie Mae and Freddie Mac (the former a creation of the Depression era), the bankruptcy of Lehman Brothers (which traces its history back even further), the takeover by Bank of America of Merrill Lynch and the US government rescue of AIG, the country's largest insurer: a single one of these would have constituted a big financial crisis in the 1980s or 1990s."
He also says the fact that the US has gone 80 years without a depression "is in itself remarkable."

You may have seen Ferguson recently on the PBS documentary The War of the World: A New History of the 20th Century, which he wrote and narrated.

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.