December 28, 2009

Can we get another stimulus package and ignore the Republicans and their tax cuts this time please? From This Week, Paul Krugman agrees with his fellow Nobel laureate, Joseph Stiglitz that there is a good chance that the economy is going to contract in the second half of 2010.

TAPPER: OK, we are getting close to short on time but I do want to ask you a question about the economy for 2010. Your fellow laureate, Joseph Stiglitz has said there's a significant chance the U.S. economy will contract in the second half of 2010. He's calling on the government to prepare a second stimulus. Do you think that's possible?

KRUGMAN: Yes, it's a reasonably high chance. I don't think it's more -- it's less than 50/50 odds, but you know, what we've got right now is a recovery that first of all is not showing up very much in jobs yet. It's being driven by fiscal stimulus which is going to fade out in the second half of next year and by inventory bounce. You know, production was low because companies were running on their inventories. They're stopping doing that so now you've got a bounce in the economy.

But that's also going to run out. So the things we know about are all going to be negative in the second half of next year. Now the financial markets, the last month, the financial markets have gotten really optimistic. You look at things like the term spread on bond rates. They suggest that the financial markets really think there is going to be a much more vigorous recovery. I don't see where it's supposed to come from, so the range is huge here. I would basically go with Joe Stiglitz. I'm really worried about the second half.

From Digby:

Boy I hope he's wrong about this.


Atrios agrees.

Tim Geithner, on the other hand, is confident that everything's coming up roses. Take your pick.

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