Depression risk might force U.S. to buy assets

Bernard Connolly, global strategist at Banque AIG in London, is quoted by Reuters as saying "Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices." The whole article is good reading: Depression risk might force U.S. to buy assets Some excerpts: Tue Feb 12, 2008 4:19pm EST By John Parry NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts. That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London. In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency. The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said. "If we don't avoid depression, the only thing worth holding is cash," he added. (Reporting by John Parry; Editing by Tom Hals)