Friday, November 21, 2008

Paul Krugman: The Lame-Duck Economy

Paul Krugman, the Nobel prize winning economist at the New York Times, thinks this nation is in some real trouble.

The Lame-Duck Economy

Everyone’s talking about a new New Deal, for obvious reasons. In 2008, as in 1932, a long era of Republican political dominance came to an end in the face of an economic and financial crisis that, in voters’ minds, both discredited the G.O.P.’s free-market ideology and undermined its claims of competence. And for those on the progressive side of the political spectrum, these are hopeful times.

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days.
How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot.

Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending.

The prospects for the economy look much grimmer now than they did as little as a week or two ago.

Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff.

How much should we worry about what looks like two months of policy drift? At minimum, the next two months will inflict serious pain on hundreds of thousands of Americans, who will lose their jobs, their homes, or both. What’s really troubling, however, is the possibility that some of the damage being done right now will be irreversible. I’m concerned, in particular, about the two D’s: deflation and Detroit.

About deflation: Japan’s “lost decade” in the 1990s taught economists that it’s very hard to get the economy moving once expectations of inflation get too low (it doesn’t matter whether people literally expect prices to fall). Yet there’s clear deflationary pressure on the U.S. economy right now, and every month that passes without signs of recovery increases the odds that we’ll find ourselves stuck in a Japan-type trap for years.

About Detroit: There’s now a real risk that, in the absence of quick federal aid, the Big Three automakers and their network of suppliers will be forced into liquidation — that is, forced to shut down, lay off all their workers and sell off their assets. And if that happens, it will be very hard to bring them back.

Now, maybe letting the auto companies die is the right decision, even though an auto industry collapse would be a huge blow to an already slumping economy. But it’s a decision that should be taken carefully, with full consideration of the costs and benefits — not a decision taken by default, because of a political standoff between Democrats who want Mr. Paulson to use some of that $700 billion and a lame-duck administration that’s trying to force Congress to divert funds from a fuel-efficiency program instead.

Is economic policy completely paralyzed between now and Jan. 20? No, not completely. Some useful actions are being taken. For example, Fannie Mae and Freddie Mac, the lending agencies, have taken the helpful step of declaring a temporary halt to foreclosures, while Congress has passed a badly needed extension of unemployment benefits now that the White House has dropped its opposition.

But nothing is happening on the policy front that is remotely commensurate with the scale of the economic crisis. And it’s scary to think how much more can go wrong before Inauguration Day.

1 comment:

Adam Smith said...

Market Crash THEN The New World Economic Order

Interest Rates [Credit] are the Cause and Consequence of the Explosion of Income/Wealth Disparities and, Hence, of the Inherent Instability of This Economy:

Chart of Long-Term interest Rates

The Ominous Keynes' Liquidity Trap
Origin of the Chaotic Black Thursday 29 October 1929

The Obvious Solution is to Abolish Credit

Our Short Run Solution
The Credible New World Economic Order:

A Credit Free, Free Market Economy

What Else?... What Is Exactly the Other Option?

What Have You Been Proposed Except to Wait and Suffer Till The Crisis is Over?

What did Thy Offer to You That is Only Credible?

We Know That When People Will Be Left With no Other Option
They Will Join Massively Once The Stock Market Crash.

We Will Jump Start our Economy After

The Market Crash


When 100,000,000 People Have Join.

Although the Number of Adopters Will Grow in a Chaotic Manner,
at the Image of the Crash Which Will Render it Necessary,
In Order to Minimize the Time we Will be Left Without an Economy,
It Is in Our Best Common Interest To Give a Wide Audience to Our System.

The Age of Turbulence: Adventures in a New World Economic Order.

A Credit Free, Free Market Economy

✔ Introduction

✔ The New World Economic Order

✔ Numbered Account

✔ A Credit Free Currency

✔ Assets Transfer

✔ A Specific Practice of Employment, Interest and Money

1776 - Annuit Cœptis:

Consider your environment, print and give a wide audience to that document.

Should you need to contact 1776 - Annuit Cœptis please write to