Forbes: Economy in 'Cardiac Arrest'

Former presidential candidate Steve Forbes declared Monday the U.S. economy is in “cardiac arrest” and will plunge into “something we haven’t seen since the early 1930s” if Congress doesn’t come to the urgent rescue of American financial institutions.

“You have to have faith that at some point these people will come to their senses, and do things that have to be done to stabilize the patient, and then we can take positive measures, like a strong dollar, like tax cuts, to get our economy in shape so that it can start to recover next year,” Forbes told Newsmax in an exclusive interview late Monday afternoon. “But right now we’ve got to make sure the patient doesn’t die. It’s in cardiac arrest and the doctors have decided to take a recess.”

VIDEO: Steve Forbes: The Financial System Is in Cardiac Arrest

Forbes says the economy is already in a recession, and predicted that financial markets will take “a huge hit” on Tuesday in addition to a nearly 778 point drop the Dow Jones Industrial Average experienced on Monday. It was the largest single-day drop in history, and effectively erased $1.2 trillion dollars in market equity.

“If something isn’t done, then the financial system will go into cardiac arrest, and we’ll have something we haven’t seen since the early 1930s,” said Forbes, the CEO of Forbes magazine.

Forbes said Wall Street and the federal government share blame for the meltdown. The No. 1 factor, he said, was excessive expansion of the money supply by the Federal Reserve beginning in 2004. He also blamed Freddie Mac and Fannie Mae, which helped people buy homes although they would be delinquent “from the time they signed the mortgage.”

“Government action helped precipitate the crisis, everything from a weak dollar to crazy rules on short selling making it easier, crazy rules on accounting,” he explained. “And now we have a disaster on our hands. While this bill is not perfect -- all of us could have written it better -- it’s the only thing we have. When a patient is about to die, you take emergency measures, even if you could do better in calmer circumstances.”

Although Forbes lambasted the Fed for loosening the money supply too much earlier this decade, that is exactly the action he predicts they will now take again.

“I think you’ll see an emergency [Fed rate] cut,” he said. “I’ think you’ll see the central banks around the world pump in hundreds of billions of dollars to keep the system going until Wednesday.”

The U.S. Senate is expected to take up debate on the $700 billion bailout package on Wednesday.

“The government had a big role in this,” Forbes said. “Yes, there was bad behavior on Wall Street. But by golly it couldn’t have reached the disastrous proportion it has without the crazy policies of Washington, the Federal Reserve, Congress, and I must say the White House.”

Forbes told Newsmax the economy is already in a recession: “September was a bad month, and the 4th quarter of this year is going to be rather ugly. But if we start doing things right now, next year we can lay the foundation for a recovery. Right now we’re in a recession.”

Forbes also voiced strong reservations over the economic policies of Democratic presidential nominee Sen. Barack Obama, D-Ill. “Small businesses would be hurt by his big Social Security tax increase and raising taxes on capital, which businesses need to grow and create new jobs,” Forbes said. “So yes, he would make the situation worse, and he’s already proposed about $800 billion dollars in new spending programs. He says he’ll get the money by closing loopholes, which means he’s going to print it.”