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Prechter: Bank Reform Will Shrink Credit and Kill the Economy

Posted May 21, 2010 01:29pm EDT by Peter Gorenstein in Newsmakers, Banking
Related: ^dji, ^gspc, xlf, skf, gs, c, faz

The Senate version of financial regulation is bad for business on Wall Street. "Some analysts estimate it could cut the profits of major financial institutions by roughly 20%," reports the Wall Street Journal.

It’s also bad for the economy, says Robert Prechter, president of Elliott Wave International. Prechter believes the measures are doing the exact opposite of their intention. “Even though they (the government) want credit to expand, because that’s the base of inflation, they’re doing everything they can to restrict it,” he tells Aaron in this clip.

"On one hand we have the Fed trying to jawbone banks into lending but the government is doing everything it can to curtail the lending," he continues, noting the Senate’s bill will mean smaller bank profits, which in turn means less money to lend.  It also plays into Prechter's thesis that the economy is headed for deflation and depression. 

Prechter coined the term "socionimcs" -- the belief social moods drives economic, financial and political behavior -- says it’s just the beginning of this movement. “All this behavior is classic, eventually we’re going to see an increase in protectionism," he says. "It’s just the way people behave. They can’t help themselves.” 

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