Krugman on Life Without Bubbles
By Susie Madrak Monday Dec 22, 2008 11:30amSaying he's "fairly optimistic about 2010," Paul Krugman says the economy will still need economic stimulus for several years to come and warns Obama to resist the temptation to cut back at the first signs of recovery:
A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.
But it will probably be a long time before the trade deficit comes down enough to make up for the bursting of the housing bubble. For one thing, export growth, after several good years, has stalled, partly because nervous international investors, rushing into assets they still consider safe, have driven the dollar up against other currencies — making U.S. production much less cost-competitive.
Furthermore, even if the dollar falls again, where will the capacity for a surge in exports and import-competing production come from? Despite rising trade in services, most world trade is still in goods, especially manufactured goods — and the U.S. manufacturing sector, after years of neglect in favor of real estate and the financial industry, has a lot of catching up to do.
Anyway, the rest of the world may not be ready to handle a drastically smaller U.S. trade deficit. As my colleague Tom Friedman recently pointed out, much of China’s economy in particular is built around exporting to America, and will have a hard time switching to other occupations.
In short, getting to the point where our economy can thrive without fiscal support may be a difficult, drawn-out process. And as I said, I hope the Obama team understands that.
Right now, with the economy in free fall and everyone terrified of Great Depression 2.0, opponents of a strong federal response are having a hard time finding support. John Boehner, the House Republican leader, has been reduced to using his Web site to seek “credentialed American economists” willing to add their names to a list of “stimulus spending skeptics.”
But once the economy has perked up a bit, there will be a lot of pressure on the new administration to pull back, to throw away the economy’s crutches. And if the administration gives in to that pressure too soon, the result could be a repeat of the mistake F.D.R. made in 1937 — the year he slashed spending, raised taxes and helped plunge the United States into a serious recession.
The point is that it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles. And until then, the economy is going to need a lot of government help.
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http://www.geocities.com/~jimlowe/sally/image...
the content of a number of your comments, and stupid posts like this just earned you the first spot on my ignore list. Feel free to respond as you see fit.
I hope Obama listens to Krugman.
The current situation had its roots when reagan got the presidency - a long time ago. It will take a long time to fix the problems.
Obama gets so much great advice. Like Eat the Poor.
at http://cabdrollery.blogspot.com/2008/12/chene...
He is. According to Kruggie, he's consulted with the Obama team.
i don't see krugman as a rubiniac... so, i see geithner and summers cautioning obama on whatever krugman has to say.
obama is a rubiniac, and has surrounded himself with them. think clinton economic policy.
Yes, of course. Just because the Krug Man talks to Obama's peeps doesn't mean they'll listen to him.
but i didn't notice anywhere in the oped where he mentioned the necessity to raise worker wages, address the failed trade policies, challenge the corporate strangle-hold, and provide americans with universal healthcare.
without those changes i don't see much hope
That's why I don't think the "recovery" is going to be anything to write home about. You can't "recover" unless you've got well paying jobs that can lift everybody out of it. Since all of our "service" jobs were servicing the housing bubble economy and since those days are OVER it's pretty much going to be the burger flippers and the WalMart greeters trading pennies with each other.
This country has to bring back manufacturing. If it means anti-globalization policies and taxes so be it. We will never come back if we don't make anything of substance.
Let's start making stuff. A country that doesn't manufacture goods is failing.
let's make the stuff that makes the stuff.
A diversity of production is what we need.
Then let's make stuff that makes a whole bunch of different stuff!
http://www.computerworld.com/action/article.d...
"free trade" policies are total bullshit and are at the root of most of our country's economic problems. The trickle-down believers and their cheerleading pundits have to twist their "logic" into pretzels to rationalize the US going from the world's largest creditor and exporter to the largest debtor and importer in the 27+ years since the implementation of Reaganomics. There is no way the American worker can compete with 10 cent an hour Asian or Central American slave labor. Until these horrendous NAFTA type trade agreements are scrapped we're just rearranging the deck chairs on the Titanic.
Correct-o-mundo! I can already hear the violins playing "Nearer My God to Thee."
Any "stimulus" that goes to the top of the economic ladder is wasted money. The only "stimulus" that will actually stimulate the economy is that that goes to the bottom.
http://i189.photobucket.com/albums/z54/master...
That's not going to be nice when she's 55 years old.
http://www.digital-eel.com/blog/images/finlay...
We built the wrong culture.
Starting with Henry Ford and working forward.
We built a car culture based on fossil fuels, the excessive use of which has damaged the planet.
The continued use of which is not sustainable.
The 'express-way' infrastructure, the sprawling suburbs, all of this will adapt poorly to the culture that we will truly need.
Without a great vision of a sustainable future and the political will to make it a reality, I suspect that we will be making many of the same mistakes over again.
I like Krugman but I also like Stiglitz.
We are a long way from the bottom which may come in 2009 if we are lucky.
Look for a long term contraction.
The historical models suggest that when empires get off track, they don't get back on.
despite it's problems the industrialization of the u.s. helped create a huge middle class, and with mass production comes the opportunity for the mass organization of labor.
We shot our wad in Iraq,the economy may limp a little.
and toward that end i say (and do) buy american. Thoroghgood/weinbrenner is still a union shoe and boot maker and i am entirely satisfied with their products. Wigwam socks are both union made and superior. we vote with our dollars, our feet and our mouse clicks.
No problem just a little bump, we'll be in New York in no time. Get the captain up, he'll know what to do.
The only way out used to be a war before all these Atomic weapons.
Good luck and good night.
http://www.freewebs.com/nzmichaeljackson/_411...
sigh. ; )
...you'll feel better.
http://www.aksalser.com:80/game.htm
I DO feel better. The booze prolly helps, too.
Holiday baking going on here. I just had two peanut butter cookies. They would have been good washed down with a hot buttered rum, but it's too early in the day.
we can pull "a mouse that roared"
start a war...loose....then get aide to rebuild
Like we have an economy that has been built without any concern for sustainability.
If we were looking to have a sustainable economy we would not have allowed the manufacturing base to be moved out of the country.
We would not allow companies that moved to other countries for cheap wages and no enviromental enforcement, to sell their products back here. I mean afterall if they have moved to another country they are no longer an american company so why should they be given the privlage of selling their products here?
If they have moved off shore to avoid their share of the taxes then excommunicate them no longer allow them to do business here. No government contracts to foregin countries.
http://www.youtube.com/watch?v=Vw9bxJb--3c&fe...
The problem isn't that people don't understand how good things are. It's that they know, from personal experience, that things really aren't that good.
"Paul Krugman"
In baseball, my theory is to strive for consistency, not to worry about the numbers. If you dwell on statistics you get shortsighted, if you aim for consistency, the numbers will be there at the end.
"Tom Seaver"
Today, the Muslim world is the poorest of the global powers.
"Mahmoud Ahmadinejad"
In the new economy, information, education, and motivation are everything.
"William J. Clinton"
To paraphrase Winston Churchill, I did not take the oath I have just taken with the intention of presiding over the dissolution of the world's strongest economy.
"Ronald Reagan"
In the 'Nike Economy,' there are no standards, no borders and no rules. Clearly, the global economy isn't working for workers in China and Indonesia and Burma any more than it is for workers here in the United States.
"John J. Sweeney"
gets bank balance sheets clean and consumers out from under a mountain of credit card debt.
I think the bottom is a long, long way down, no matter what.
Bank Balance sheets will be clean once the Fed buys all of the CDOs and CDS etc, to the tune of $20 Trillion, there about.
As for the consumers and their mountain of debt, they are going to be pretty much on their own.
Government by and for the Corporations, donchaknow.
The race is on now to see which government prints the most money trying to export their problems elsewhere.
So far we are in the lead.
When inflation kicks in the interest rates will not stay at zero.
Then the consumers and their debt may really know pain.
I agree entirely that we haven't hit bottom.
is that even if the fed funds rate is about zero, the interest rate on a lot of credit card debt is or can be 29%.
the sky may be the limit as far as credit card interest.
They have you exactly where they want you.
A debt slave.
I just talked to a friend, she has three part time jobs. She works all of the time.
She owes over 21k in credit card debt, she pays 15% interest, she makes minimum payments.
She is a debt slave.
Bankruptcy laws need to be changed immediately so that people can get out from under loans/credit given to them by predators---who should all go to jail.
Senator Plastic.
The Bankruptcy law was just revised, very much to the consumers disadvantage.
Previously one could continue paying mortgage payments but suspend credit card payments.
Now it is the other way around which has increased foreclosures as people are forced to pay their credit cards first.
Thank you Joe Biden, D-MBNA
When will Republicans not expect government to be there for them to bail them out whenever they screw up? Damn socialist Republicans.
Life without Bubbles was hard for Michael Jackson though.
That's been my plan for fixing the financial/economic woes. Just put white out on all the statements, reports, balance sheets, whatever (and use the "delete" button on those same things that reside only in computers).
All of this "debt" is just numbers on paper (or computer screens). The Fed and other central banks just create Money out of thin air and make us pay interest on it - even though it's backed by Nothing!
So, I say we just wipe out all of those "Pretend Debts", interest due, CD Swaps, everything and start all over at 0.
That would save a lot of time and a lot of lives.
Unconfirmed... I heard this morning that China is now going to adjust their "Fractional Reserves" spigot? (CNBC 12/22/08) Whats that gonna help? :-P
Amended: Oh now I know why...
Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) with the choice of lending out the remainder, while maintaining the simultaneous obligation to redeem all deposits immediately upon demand. This practice is universal in modern banking
http://www.youtube.com/watch?v=8EHxM8Z9LMk
Protectionist dominoes are beginning to tumble across the world
The riots have begun. Civil protest is breaking out in cities across Russia, China, and beyond.
By Ambrose Evans-Pritchard
Last Updated: 10:30AM GMT 22 Dec 2008
Greece has been in turmoil for 11 days. The mood seems to have turned "pre-insurrectionary" in parts of Athens - to borrow from the Marxist handbook.
This is a foretaste of what the world may face as the "crisis of capitalism" - another Marxist phase making a comeback - starts to turn two hundred million lives upside down.
We are advancing to the political stage of this global train wreck. Regimes are being tested. Those relying on perma-boom to mask a lack of democratic or ancestral legitimacy may try to gain time by the usual methods: trade barriers, sabre-rattling, and barbed wire.
Dominique Strauss-Kahn, the head of the International Monetary Fund, is worried enough to ditch a half-century of IMF orthodoxy, calling for a fiscal boost worth 2pc of world GDP to "prevent global depression".
"If we are not able to do that, then social unrest may happen in many countries, including advanced economies. We are facing an unprecedented decline in output. All around the planet, the people have reacted with feelings going from surprise to anger, and from anger to fear," he said.
Russia has begun to shut down trade as it adjusts to the shock of Urals oil below $40 a barrel. It has imposed import tariffs of 30pc on cars, 15pc on farm kit, and 95pc on poultry (above quota levels). "It is possible during the financial crisis to support domestic producers by raising customs duties," said Premier Vladimir Putin.
Russia is not alone. India and Vietnam have imposed steel tariffs. Indonesia is resorting to special "licences" to choke off imports.
The Kremlin is alarmed by a 13pc fall in industrial output over the last five months. There have been street protests in Moscow, St Petersburg, Kaliningrad, Vladivostok and Barnaul. Police crushed "Dissent Marchers" holding copies of Russia's constitution above their heads in Moscow's Triumfalnaya Square.
"Russia has not seen anything like these nationwide protests before," said Boris Kagarlitsky from Moscow's Globalization Institute.
The Duma is widening the treason law to catch most forms of political dissent, and unwelcome forms of journalism. Jury trials for state crimes are to be abolished.
Yevgeny Kiseloyov at the Moscow Times said it feels eerily like December 1 1934 when Stalin unveiled his "Enemies of the People" law, kicking off the Great Terror.
The omens are not good in China either. Taxis are being bugged by state police. The great unknown is how Beijing will respond as its state-directed export strategy hits a brick wall, leaving exposed a vast eyesore of concrete and excess plant.
Exports fell 2.2pc in November. Toy, textile, footwear, and furniture plants are being closed across Guangdong, now the riot hub of South China. Some 40m Chinese workers are expected to lose their jobs. Party officials have warned of "mass-scale social turmoil".
The Politburo is giving mixed signals. We don't yet know how much of the country's plan to boost domestic demand through a $586bn stimulus package is real, and how much is a wish-list sent to party bosses in the hinterland without funding.
Shortly after President Hu Jintao said China is "losing competitive edge in the world market", we saw a move towards export subsidies for the steel industry and a dip in the yuan peg - even though China already has the world's biggest reserves ($2 trillion) and the biggest trade surplus ($40bn a month).
So is the Communist Party mulling a 1930s "beggar-thy-neighbour" strategy of devaluation to export its way out of trouble? Such raw mercantilism can only draw a sharp retort from Washington and Brussels in this climate.
"During a global slowdown, you can't have countries trying to take advantage of others by manipulating their currencies," said Frank Vargo from the US National Association of Manufacturers.
It is a view shared entirely by President-elect Barack Obama. "China must change its currency practices. Because it pegs its currency at an artificially low rate, China is running massive current account surpluses. This is not good for American firms and workers, not good for the world," he said in October. The new intake of radical Democrats on Capitol Hill will hold him to it.
There has been much talk lately of America's Smoot-Hawley Tariff Act, which set off the protectionist dominoes in 1930. It is usually invoked by free traders to make the wrong point. The relevant message of Smoot-Hawley is that America was then the big exporter, playing the China role. By resorting to tariffs, it set off retaliation, and was the biggest victim of its own folly.
Britain and the Dominions retreated into Imperial Preference. Other countries joined. This became the "growth bloc" of the 1930s, free from the deflation constraints of the Gold Standard. High tariffs stopped the stimulus leaking out.
It was a successful strategy - given the awful alternatives - and was the key reason why Britain's economy contracted by just 5pc during the Depression, against 15pc for France, and 30pc for the US.
Could we see such a closed "growth bloc" emerging now, this time led by the US, entailing a massive rupture of world's trading system? Perhaps.
This crisis has already brought us a monetary revolution as interest rates approach zero across the G10. It may overturn the "New World Order" as well, unless we move with great care in grim months ahead. This is where events turn dangerous.
The last great era of globalisation peaked just before 1914. You know the rest of the story.
Snip Samuel Johnson wrote in 1758, "It is vain to continue an institution which experience shows to be ineffectual. We have now imprisoned one generation of debtors after another, but we do not find that their numbers lessen. We have now learned, that rashness and imprudence will not be deterred from taking credit; let us try whether fraud and avarice may be more easily restrained from giving it."
http://myvesta.org/history/history_debtorpris...
They say there are about 50 TRILLION worth of CDS's out there. That is unknown disaster of biblical proportions. So make them invalid, have the regulators go over the banks books in a very serious way, restore faith in the system (the foundation of it all) and maybe, just maybe, with theses steps as a start - and many more needed I sure, to set things right in an ethical and well as financial sense in the "capitalism" world - we will have a better America.
3 quadrillion dollars, which is pretty high considering the planet's GDP is just under one quadrillion. These guys and their leverage, sheesh.
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