We all know we up to our ears in trouble. What people want to know now is how bad is this financial storm going to get. Bill Bonner in The Daily Reckoning says unfortunately the answer could be “a lot worse.” He points readers to the following quote from Professor of Economics at the NYU Nouriel Roubini.

This from The Daily Reckoning:

“The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

“At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow — a V-shaped six month recession — has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

“At this point the risk of an imminent stock market crash — like the one-day collapse of 20% plus in U.S. stock prices in 1987 — cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

“A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway.”

And, looking in our old book, Financial Reckoning Day, written with Addison Wiggin, we find this remarkable forecast:

“If the US were to repeat the Japanese experience, stocks would be expected to return to their 1995 trend line, with the Dow below 4,000 in the year 2012, at the very moment when America’s baby boomers will most need their money.”

Source: Capitalism Has Left the Building

Last 5 posts by Bill Bonner

• The Next Depression: It’s worse than they think - November 25th, 2009
• When will the depression be over? When the work is done. - November 23rd, 2009
• Goldman Sachs – Defending the biggest kid on the block - November 19th, 2009
• Crash Alert: The Future and Failure of the U.S. Dollar - November 16th, 2009
• Japan’s Lost Decade – is it too late for U.S. to learn from their mistakes? - November 12th, 2009