It’s Beginning To Look A Lot Like A Depression (UPDATED)
If good looks was a minute/ You know that you could've been an hour- Smokey Robinson, 'The Way You Do The Things You Do'
At least that’s according to Paul Krugman in Sunday’s New York Times. The Paulson bailout has, surprise surprise!, failed. All that money which the Fed poured into banks has not increased lending. Where does that leave us? With Obama’s stimulus package. We stated almost two months ago that the solution to this economic crisis is public invenstment. Shambollocks! stands by that belief.
We’ll soon find out how skilled Obama is at placating Republicans. Expect some fierce opposition to his spending package. Expect much talk of ‘big government’. No, this is not about government spendng. It is about getting money into the hands of people who will spend it. The banks right now are not lending out the money which the Fed has provided. They are hoarding it, scared to death of growing the amount of bad debt on their books.
This is very important. The next three months could very well make or break the Obama administration. Reach out to the Republicans and tell them that they won’t look like the bad guys. Work as hard as you can to get those votes. But if they remain recalcitrant, hold public hearings on where the money from the Paulson bailout went. The Republicans will not like that.
- Foreign Policy this month had five economists who called this crisis write essays on what to expect for 2009 and beyond. And the news is not good, y’all. Nouriel Roubini writes that:
Certainly, the United States will experience its worst recession in decades. The formerly mainstream notion that the U.S. contraction would be short and shallow—a V-shaped recession with a quick recovery like the ones in 1990–91 and 2001—is out the window. Instead, the U.S. contraction will be U-shaped: long, deep, and lasting about 24 months. It could end up being even longer, an L-shaped, multiyear stagnation, like the one Japan suffered in the 1990s.
And if that doesn’t scare ya:
This scenario is dangerous for many reasons. A number of central banks will be close enough to setting interest rates of zero that their economies fall into a triple whammy: a liquidity trap, a deflation trap, and debt deflation. In a liquidity trap, the banks lose their ability to stimulate the economy because they cannot set nominal interest rates below zero. In a deflation trap, falling prices mean that real interest rates are relatively high, choking off consumption and investment. This leads to a vicious circle wherein incomes and jobs are falling, with demand dropping still further. Finally, in debt deflation, the real value of nominal debts rises as prices fall—bad news for countries such as the United States and Japan that have high ratios of debt to GDP.
I think that means we could be very, very screwed when our debt remains high and we aren’t earning and spending as much.
Stephen S. Roach sounds like an echo box to the above.
But don’t count on a vigorous (V-shaped) rebound from the post-bubble global recession of 2009. With no other major consumer likely to step up and fill the void left by the United States, a lopsided, bubble-distorted world will experience an anemic recovery at best. It will be a long time before global growth returns to the nearly 5 percent rate of the four and a half years that ended in mid-2007. Post-bubble shakeouts are lethal for any individual economy—to say nothing for the world as a whole.
Yuck. Buckle down America. Save, save, save. It’s the only way for us middle class to survive. My fear is that we are a generation who’s always been able to get everything. There’s plenty of people my age and younger who have a belated education coming. 
Stop Already, Bushies! Just Stop!
FP Passport Monday brought to light an underexposed story from last week. The gay rights issue last week which saw attention was BO’s choice of Rick Warren to speak at his inaugration. I agree that the choice of Warren was a cynical political move and if I was gay I’d be rightly upset. But the gay community must also remember that the other party wants to burn them out of their homes. Last week, the Bush administration (ok, (sigh) the United States) voted against a non-binding UN resolution to decriminalize homosexuality. Who joined us? Why, those leaders of enlightenment- Russia, China, the Vatican, and the Organization of the Islamic Conference.
The reason the Bush administration gave for the no vote was that a yes vote would limit state’s ability to legislate gay marriage. What?! It’s non-binding! It’s paper! Just put down your Bible, vote yes, and make us look good! [Grind teeth] [Rend hair] [Smack head repeatedly]
Bad news for gays- there is a well-funded campaign willing to fight gay rights wherever and whenever that crosses disparate and seemingly irreconcilable ideologies. Good news for gays- the majority of Americans and the literate world are with you, and progress always wins out. The medium news for gays- the guy you worked to put in office loves you, but wants you to know you’re just another special interest.
Don’t burn your bridges here, gays. Your moment is almost at hand. Be pissed, as you should. If you’re about to throw in the towel, remember the Republicans think you’re criminals.
And fight on.
O'Hare Arpt., IL
