Inflammatory language used by Treasury and the United States government’s failure to address a loss of confidence in the economy fuelled an atmosphere of panic and demonstrated the prevalence of economic mismanagement in the US during the global financial crisis (GFC).
Use of phrases such as ‘financial Armageddon’ by Treasury in October 2008 effectively shut down the US economy and took confidence on a rollercoaster ride.
“They bailed out Bear Stearns, then let Lehman’s go down and then bailed out AIG,” former US Federal Deposit Insurance Corporation chairman and current LECG Global Financial Services chairman William Isaac said.
“No-one could be sure there was a plan.”
Isaac said currently the biggest single problem in the US economy was a loss of confidence and come the congressional elections in November, Americans would vote with their feet.
“A lot of people look at numbers and numbers are important, but economists should never underestimate the importance of psychology. The government did not give that due heed in the crisis,” he said.
He said he was not optimistic about the outlook for the world economy, particularly the US and Europe, which had serious structural problems.
“It is hard to see the US or Europe economies growing anywhere near to the employment levels that are needed,” he said.
And with a $13 billion US federal deficit and the extra pressure of the baby-boomer generation now retiring, an enormous burden was being placed on “the few people that are working”, he said.
He said the priority for the US government was to get the deficit under control, then “all will have confidence to make it”.
Meanwhile, Australia had come through the financial crisis better than most countries, in part because of its connection with Asia, he said.
Isaac has recently launched a new book, Senseless Panic: How Washington Failed America.
