For example, happy talk did not work during the first couple of years of the Great Depression, once the speculative bubble and leverage of the Roaring 20s burst, leading to the inevitable crash (as economist Irving Fisher documented). And University of Maryland professor economics professor and former Chief Economist at the U.S. International Trade Commission Peter Morici wrote in 2006: 'The speculative frenzy of recent years is causing a major adjustment, and the happy talk of realtors is prolonging the process. The absence of realistic analysis about the extent of overvaluation is characteristic in an industry that sees nothing but an upward progression for values, but houses like any other asset can be overpriced.'
Things are likely to get worse before they get better. Morici was pointing out that there was a bubble in housing, and happy talk would not keep the bubble from bursting. As Washington Post business writer Steven Pearlstein predicted in August 2007: 'Despite the happy talk from Washington and Wall Street investment houses - eerily reminiscent, by the way, of the early days of the savings-and-loan crisis of the late '80s - these shocks [the subprime and credit crises] will have serious consequences...' And economist James Galbraith is saying now (just as his father economist John Kenneth Galbraith said 50 years ago) - that "happy talk" won't solve the crisis. Indeed, the chair of the congressional oversight committee of the bailouts (Elizabeth Warren) and the senior regulator during the S & L crisis (William Black) both say that hiding the true state of affairs and trying to put a happy face on an economic crisis just prolongs the length and severity of the crash.
Happy talk might have worked before the biggest bubble in history burst, the unstoppable deleveraging process began, and the too-big-to-bury fraud began and the government dug itself into a multi-trillion dollar hole of debt. But it is now long past time for happy talk, which is why all of Obama, Geithner, Bernanke and the other cheerleaders' pep talks are failing. Indeed, the government has been gaming the fundamental economic indicators with more and more blatant attempts to hide the true state of affairs from the public for decades:
• Nixon took the U.S. off the gold standard because the U.S. defaulted on its ability to pay debts in gold.
• The social security trust fund was long ago raided.
• The government has been cooking its books and hiding debt through various accounting tricks for years.
• The government deletes the 2 most important classes of inflation (food and energy) from the "core" inflation figures, has suspended reporting of the M3 monetary supply, and uses the fake U-3 instead of more accurate U-6 employment figures.
• The Fed has blown bubble after bubble with artificially low interest rates.
• The government has suspended mark-to-market, is letting banks cook their books, rolled out the fraudulent stress tests, and is engaging in every conceivable scheme to hide the true state of affairs.
Despite all that, and despite the fact that the government, CNBC, ABC, Charlie Rose and all of the other boosters have tried to put a happy face on things, it hasn't worked. As I have repeatedly written (see this, this and this), the economy cannot recover until trust is restored. And trust can only be restored if there is an honest, adult conversation about the causes of the crisis (including fraud and corruption), the severity of the crisis, and the real, structural changes which will be made to fix the broken system instead of just more happy talk. Arianna Huffington recently pointed out the extent of the belief in happy talk among the insiders in Washington and New York: 'There is something in the current DC/NY culture that equates a lack of unthinking boosterism with a lack of patriotism. As if not being drunk on the latest Dow gains is somehow un-American.'"