Economist predicts second Depression

Press, 6 August 1987, Page 11

Economist predicts second Depression

By

RICHARD SATRAN

NZPA-Reuter New York An economist, Ravi Batra, author of a book predicting a second Depression, says the main clue for his gloomy forecast is that the rich are getting gaudier as well as wealthier. "People are buying $4O million paintings and you have the homeless roaming the streets,” Batra said.

Batra — whose book, "The Great Depression of 1990,” was turped down as unmarketable in the early 1980 s but then published privately and just issued in revised form by the publisher, Simon and Schuster — said such sharp social divides arise from a very alarming economic fact. The concentration of wealth is now at the highest level since 1929. One per cent of the population now owns 34 per cent of the wealth, the highest since 1929, when 1 per cent owned 36 per cent.

“The writing is on the wall for all to see,” said the professor from Southern Methodist University in Dallas, pointing to growing similarities between the 1920 s and the 1980 s.

The Indian-born scholar predicts that a crash will be touched off by the rich, who will create a speculative bubble in the financial markets with their spare cash. The poor and middle class, meanwhile, will

borrow more and more • heavily to get by. This will ' undermine the banking system, just as it did in the 19205. Washington's - policies compound the ; problem, he said. . “The Government, with -pits big deficits,

’We will borrow money for you.’ They are sealing the fate of the future.” In Batra’s scenario, the crash, when it comes, will begin in Japan, whose huge stock market rally makes Wall Street’s historic advance this year look like a healthy little blip. Stock prices versus earnings there are three times as high as in the United States market. The- depression Batra foresees would be global in nature.

“It’s spooky,” said Batra of the similarities between the 1920 s and the present. His book has been reviewed in the “New York Times,” “The Boston Globe,” and other newspapers, generally favourably. “He writes about his subject as clearly as if he were telling bedtime stories, nightmarish though they may be,” said a “New York Times” reviewer.

Harry A. Jacobs jun., senior director of Prudential Bache Securities Inc., said: “Batra’s book dramatically reinforces my own deepest worries about the economy. I foresee a worldwide convulsion caused by the obscene Federal budget deficit, the enormous trade deficit and the purchase of a worrisome amount of our Federal and State bonds by the Japanese. It endangers us all.” A Morgan Stanley report said: "Batra’s evidence in support of his theory is impressive. His analysis of the causes of depressions also makes a lot of sense.” Batra hit upon the idea of the coming crash by studying the cycles of money growth and inflation, recession de-

pression. He discovered that money growth peaks every 30 years, and a recession or a full-blown depression will always follow a decade or so later. The seeds of the 1990 depression were sown by the late 1970 s inflation.

Borrowing the broad theory of the Indian scholar, Prabhat Ranjan Sarkar, of social and historical cycles, he works out a formula for a financial crash at the end of this decade.

While writing the book in 1982, Batra predicted the stock market rally that has already taken place. He said it would mirror the 19205. It would run through 1989, then there would be a 1929style crash. Since he made this prediction he has been joined by other economists who find frightening similarities between the 1920 s and the 1980 s: a stock market boom matched by just average economic growth, a heavy wave of mergers, low wage-and-price increases at the heels of double-digit inflation and conservative probusiness politics. A “New York Times” economic columnist, Leonard Silk, cites Batra among the experts who say that a great crash could happen again. Silk also cites Professor Kenneth E. Boulding, of the University of Colorado, former president of the American Economic Association, who sees a "positive probability” of another Great Depression. Recent articles by an economist, John Kenneth Galbraith, and Lazard Frere,. managing director Felix Rohatyn, have also raised the spectre of economic calamity. A

“Wall Street Journal” economics editor, Alfred Malabre jun., in his recent book, “Beyond our Means,” predicted an “economic hurricane” will be triggered by the heavy borrowing of United States citizens and Government. Simon and Schuster said Batra’s book has been in demand.

“It is an idea of which the time has come. I have overcome some of the negative publicity and irate responses,” said Batra.

Even Batra says that, while the events are historically determined, the nightmare could . be avoided. If the Federal Government imposes a property tax for the rich, this would reduce market speculation and cut the nation’s budget deficit, avoiding a crash. “I say, let’s prevent a crash,” said Batra.

Still, he gives detailed instructions on how the individual investor should proceed. He suggests buying stocks from now until 1989, when the Dow will be at 3000, and then selling — stocks, corporate bonds and real estate.

He recommends that some cash should be brought home and put in safe hiding places, and some should be used to purchase a supply of gold. In this depression, he cautions, chaos could be even greater, given the level of social disintegration that has taken place since the 19305.

He says it is unlikely that Governments will come up with a plan to avert a collapse, but adds, “I don’t believe that anything is impossible.”