Paul Krugman:Fighting Off Depression

http://www.nytimes.com/2009/01/05/opinion/05krugman.html

“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case.

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out.

We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas of the University of Chicago, in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”

(snip)
Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.

So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?

by the Obama team. Sigh. Who the hell knows?

...but it has been interesting to see his thoughts on the economy evolve.

Just a couple of months ago, he was suggesting that the economy wasn't as bad as many were saying. He
even said that he didn't expect high unemployment.

I find myself wondering what he was thinking.

I only have a minor in economics, and like a lot of other people--I knew this was REALLY bad months ago.

I can name several DUers who were more accurate about our economy than Krugman.

Don't get me wrong. I'm not criticizing Krugman. I appreciate his current thoughts. I'm just curious
about why he was late coming to the table, and what caused him to cross over and admit that we are close
to a Great Depression?

I think Krugman's primary fault was that he is a classically trained economist. No, really I mean it. Having undergone 6 years of economics tutelage myself, I can say that it is extremely hard to think out of the box of conventional wisdom. But I think Krugman is really getting there. He's still a bit too much of a free trader (again classical economics tends to beat that horse to death) but I think his Nobel Prize is emboldening him to really think out of the box with some truly progressive policies. I'm keeping my fingers crossed.

I've been calling this the Bush Depression for the last six months. Not because I want it to be, but we need to sound the alarm and not go along with the media economic cheerleaders like CNBC. I'm really pessimistic about us avoiding deflation for a year or so.

I think maybe Krugman is watching the contraction of manufacturing by 30% across much of the world AND the ineffectiveness of the Fed's monetary policy. The M1 velocity has dropped off the charts. Right now we are in free fall and Obama won't get a chance to do much of anything till mid Feb.

in which people are losing jobs and disappearing, in which the infrastructure has obviously deteriorated over the past few years, in which the price of milk is a topic of conversation in social situations. That's not the world Krugman lives in. I like him a lot, but he is a professor in an elite Ivy League School. He is relatively secure.

In my neighborhood the real estate bubble was so obvious, we were gossiping over the fence about it. I live in the real world. I felt the economic downturn because my pay has gone down drastically over the past few years.

That's why he can't see stuff that those of us closer to the bottom can see.

A few months ago, no one had any hard evidence on how much manufacturing would contract, or how much consumers would cut spending. Now they do.

A lot depends on the old x-factor. The tepid and inconsistent response to the situation by Paulson and Bernanke (which is now a non-response) has been far less than what he was expecting out of them, and this alone is enough to change a lot of people's call on the economy.

Consumers don't buy because they don't earn enough revenues, and/or they don't have cash, and/or they maxed out on their cc limits. Then they lose their jobs because their employer can't sell enough stuff to consumers, who don't buy because they don't earn enough revenues, and on and on.

That spinning wheel is the end result of that silly st.ronnie ideology. In short: total destruction of everything including life-on-earth itself.

Give people everywhere enough revenues to consume and they will, but make sure that what they consume doesn't destroy the only planet we've got.

Hope Krugman gets it sooner than later: it's a minute thirty to midnight.

...call it by its correct name

The Great Bush Depression

Yes, that is what it is, but it will be blamed on Obama.
:(

Ever since Bush was elected, I have wondered if Americans were still capable of identifying real problems (as opposed to things that make them very angry) and once having identified a real problem, if they would then be able to embrace a course of action that calls both for sacrifice and an acknowledgment that the best course of action may be found only through painful trial and error.

Observing Mitch McConnell and his ilk in the Senate, I am skeptical that Obama will be able to pass a timely and effective stimulus package. After watching the media coverage of "the bailouts", I am not optimistic about the media's ability to inform Americans of the merits of a stimulus package and the relevance of competing arguments. When I consider that 46% of Americans seemed to think that Sarah Palin was an acceptable Vice Presidential candidate, I feel very skeptical indeed that Americans are up to the challenge.

Our political discourse has been debased since the two main political parties were hijacked by identity politics. We have muddled through calm seas while arguing loudly about things like stem cell research and gay marriage. We have allowed our democracy to fall into disrepair. We are gloriously unprepared for the storm on the horizon.

Its all fine and dandy that we talk about economic recovery but the question not being asked is in which sector of the economy aka financial, manufacturing,ect, will the recovery come from?? All the bubble have burst and unless you reinflate those bubbles, you don't have an engine to pull the economy out of this abyss IMHO..

http://www.reuters.com/article/ousiv/idUSTRE4BA47420081211?sp=true
Credit crunch? What credit crunch?
Thu Dec 11, 2008 10:13am EST

By Brian Love

PARIS (Reuters) - The credit crunch is not nearly as severe as the U.S. authorities appear to believe and public data actually suggest world credit markets are functioning remarkably well, a report released on Thursday says.

As a result, governments are pumping masses of public money into the economy across the world because of the difficulties of a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway, according to the report published by Celent, a financial services consultancy.

"It's just stabbing in the dark with trillions of dollars," Octavio Marenzi, report author and head of Celent, told Reuters in a telephone interview where he questioned the depth of the analysis that preceded numerous fiscal stimulus packages.

The report, much of which is based on U.S. Federal Reserve data, challenges a long list of assumptions one by one, arguing that there is indeed a financial crisis but that, on aggregate, the problems of a few are by no means those of the many when it comes to obtaining credit.

"It is startling that many of (Federal Reserve) Chairman (Ben) Bernanke and (Treasury) Secretary (Henry) Paulson's remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead," said the report.

-------


http://www.alternet.org/workplace/115768/was_the_%27credit_crunch%27_a_myth_used_to_sell_a_trillion-dollar_scam?page=entire

Was the 'Credit Crunch' a Myth Used to Sell a Trillion-Dollar Scam?
By Joshua Holland, AlterNet. Posted December 29, 2008.

(snip)

For the most part, the press has continued to echo Bush's central assertion that there's a "credit crunch" preventing even qualified borrowers -- that's the key point -- from getting loans, and it's now part of the conventional wisdom.

But a number of economists are questionioning the factual basis of the credit crunch narrative. Columnist David Sirota recently looked at those claims and concluded that Americans "had been punk'd" -- that "the major claims about a credit crisis that justified Congress cutting a trillion-dollar blank check to Wall Street were demonstrably false," and the threat of a systemic banking crash was used by the Bush administration to overcome popular resistance to the "bailout."

I think this sham is bipartisan all the way...

... credit is out there... and it's easy to get.

5 years ago I needed a car. I could get financing for one, but the APR was at 17.5%. Yep, THAT high. My credit has always been in the doldrums and because I was in dire need, I took that loan and the vehicle that went with it. I had to co-sign with my wife to get the vehicle.

This Christmas time just passed, I got hit by a red-light runner. I was driving that car I got 5 years ago at 17.5%; it got totaled. My own personal financial position since then has improved but not drastically... same employer, somewhat increased income, but more obligations because I took out student loans when studying part time. Again, I co-signed with my wife... and now the rate is 9.89%. Through my insurance company of all people. The people who did my original financing did extend me finance at 13%... I turned that down.

Maybe I'm right, maybe I'm wrong. Yes there is a slowdown. Yes, we are definitely in a recesson. Depression? I don't think so, it don't feel like it here because even though where I work they were talking about culling 10% of the workforce, they're taking their own sweet time in dragging out who's getting cut and who is not. Here I know some people whose positions did get eliminated by outsourcing and for them fortunately the outsourcing guys hired them to do the same job instead as a vendor rather than an employee. Plus my wife works in the healthcare business and they're still hiring like crazy apparently.

Mark.

Guess it does...

seen all of this coming, but, alas, he did not. But as for me I am fighting off a depression cause I know Krugman is married and I will never have him.