Paul Krugman dropping science....

Paul Krugman's recent piece in NY TImes...

May 20, 2010
Lost Decade Looming?
By PAUL KRUGMAN

Despite a chorus of voices claiming otherwise, we aren’t Greece. We are, however, looking more and more like Japan.

For the past few months, much commentary on the economy — some of it posing as reporting — has had one central theme: policy makers are doing too much. Governments need to stop spending, we’re told. Greece is held up as a cautionary tale, and every uptick in the interest rate on U.S. government bonds is treated as an indication that markets are turning on America over its deficits. Meanwhile, there are continual warnings that inflation is just around the corner, and that the Fed needs to pull back from its efforts to support the economy and get started on its “exit strategy,” tightening credit by selling off assets and raising interest rates.

And what about near-record unemployment, with long-term unemployment worse than at any time since the 1930s? What about the fact that the employment gains of the past few months, although welcome, have, so far, brought back fewer than 500,000 of the more than 8 million jobs lost in the wake of the financial crisis? Hey, worrying about the unemployed is just so 2009.

But the truth is that policy makers aren’t doing too much; they’re doing too little. Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth.

Let’s talk first about those interest rates. On several occasions over the past year, we’ve been told, after some modest rise in rates, that the bond vigilantes had arrived, that America had better slash its deficit right away or else. Each time, rates soon slid back down. Most recently, in March, there was much ado about the interest rate on U.S. 10-year bonds, which had risen from 3.6 percent to almost 4 percent. “Debt fears send rates up” was the headline at The Wall Street Journal, although there wasn’t actually any evidence that debt fears were responsible.

Since then, however, rates have retraced that rise and then some. As of Thursday, the 10-year rate was below 3.3 percent. I wish I could say that falling interest rates reflect a surge of optimism about U.S. federal finances. What they actually reflect, however, is a surge of pessimism about the prospects for economic recovery, pessimism that has sent investors fleeing out of anything that looks risky — hence, the plunge in the stock market — into the perceived safety of U.S. government debt.

What’s behind this new pessimism? It partly reflects the troubles in Europe, which have less to do with government debt than you’ve heard; the real problem is that by creating the euro, Europe’s leaders imposed a single currency on economies that weren’t ready for such a move. But there are also warning signs at home, most recently Wednesday’s report on consumer prices, which showed a key measure of inflation falling below 1 percent, bringing it to a 44-year low.

This isn’t really surprising: you expect inflation to fall in the face of mass unemployment and excess capacity. But it is nonetheless really bad news. Low inflation, or worse yet deflation, tends to perpetuate an economic slump, because it encourages people to hoard cash rather than spend, which keeps the economy depressed, which leads to more deflation. That vicious circle isn’t hypothetical: just ask the Japanese, who entered a deflationary trap in the 1990s and, despite occasional episodes of growth, still can’t get out. And it could happen here.

So what we should really be asking right now isn’t whether we’re about to turn into Greece. We should, instead, be asking what we’re doing to avoid turning Japanese. And the answer is, nothing.

It’s not that nobody understands the risk. I strongly suspect that some officials at the Fed see the Japan parallels all too clearly and wish they could do more to support the economy. But in practice it’s all they can do to contain the tightening impulses of their colleagues, who (like central bankers in the 1930s) remain desperately afraid of inflation despite the absence of any evidence of rising prices. I also suspect that Obama administration economists would very much like to see another stimulus plan. But they know that such a plan would have no chance of getting through a Congress that has been spooked by the deficit hawks.

In short, fear of imaginary threats has prevented any effective response to the real danger facing our economy.

Will the worst happen? Not necessarily. Maybe the economic measures already taken will end up doing the trick, jump-starting a self-sustaining recovery. Certainly, that’s what we’re all hoping. But hope is not a plan.

nevermind "Wolfman" - this is the REAL scary stuff...National Debt & Budget Deficit summary, and how it affects unborn Americans...

Drowning in Debt: What the Nation's Budget Woes Mean for You
Economists Predict Cutbacks, Tax Increases That 'Aren't Even Imaginable'
By DEVIN DWYER
WASHINGTON, Feb. 17, 2010—

American political and economic leaders have sounded the alarm for years about the red ink rising in reports on the federal government's fiscal health.

But now the problem of mounting national debt is worse than it ever has been before with -- potentially dire consequences for taxpayers, according to a report by the nonpartisan Peterson-Pew Commission on Budget Reform.

"It keeps me awake at night, looking at all that red ink," said President Obama in Nashua, N.H., on Feb. 2. "Most of it is structural and we inherited it. The only way that we are going to fix it is if both parties come together and start making some tough decisions about our long-term priorities."

Obama will sign an executive order tomorrow that establishes a bipartisan National Commission on Fiscal Responsibility and Reform to make recommendations on how to reduce the country's debt.

Over the past year alone, the amount the U.S. government owes its lenders has grown to more than half the country's entire economic output, or gross domestic product.

Even more alarming, experts say, is that those figures will climb to an unprecedented 200 percent of GDP by 2038 without a dramatic shift in course.

"Within 12 years&the largest item in the federal budget will be interest payments on the national debt," said former U.S. Comptroller General David Walker. "[They are] payments for which we get nothing."

(click below for rest of scary story...)

National Debt, Budget Deficit: A Scary Forecast for Taxpayers? - ABC News

Read it and fucking weep: unemployment to peak above 10% next year

No one has been more accurate during the last decade than the Congrssional Budget Office, with regards to accounting for where the government's cash is going, what it takes to pay for everything, unemployment/job loss numbers, predictions looking forward on what money will be left, what will be needed, and "all-things US economy." So, here you go. - sj

U.S. unemployment likely to peak above 10 percent: CBO

Thu May 21, 2009 10:24am EDT

WASHINGTON (Reuters) - The U.S. economy will likely start growing again in the second half of this year but unemployment will likely keep rising through 2010 to peak over 10 percent, the Congressional Budget Office said on Thursday.

"The growth in output later this year and next year is likely to be sufficiently weak that the unemployment rate will probably continue to rise into the second half of next year and peak above 10 percent," CBO Director Douglas Elmendorf said in prepared testimony to the U.S. House Budget Committee.

It will likely take several years for the unemployment rate to fall back to levels seen before the recession hit, in the neighborhood of 5 percent, he said in the prepared remarks.

(Reporting by Jeremy Pelofsky)

Freedom, YES! Capitalism, NO!

Great piece on NPR over the weekend, backing up what many of us have been saying for years: in a Capitalist society, you MUST have regulations, because greed trumps all else; Capitalism begats greed. Simply, people cannot be trusted. Therefore, they must be regulated. Until two years ago, Judge Richard Posner was a diehard 'free markets' guy. Our current recession/depression has woken him up. Click here or click on title of this post to hear the 5 minute interview. - sj

The A-word

It's starting to look a lot like an apocalypse.
By David Sirota

Mar. 07, 2009 |

Any serious scribe will tell you that writing is, at its heart, the maddening struggle to find exactly the right words. Should the overcast sky be called "gray," or "beige"? Is Rush Limbaugh best described as "an enraged Jabba the Hut," or "a deranged Stay Puft Marshmallow Man"? Are we living through a "recession" or a "depression"?

Recently, I've been groping for the precise word to characterize the zeitgeist of this (unfortunately) historic moment. I know it's not merely "demoralized." It's something far more dread-laden -- a word I finally found during a visit last week to central Mexico.

Sitting atop the famed Pyramid of the Sun, I took in Teotihuacan -- the ancient metropolis outside Mexico City. Its weathered bricks and mortar look like many great archaeological wonders, except its annals include a harrowing asterisk: When the Aztecs discovered the site, it was abandoned, and nobody knows what happened to its inhabitants. The ruins thus feel like monuments to an apocalypse.

That's the term that popped into my mind as I baked in the Mexican sun -- "apocalypse": a phenomenon whose signs are everywhere these days.

Iraq bleeds from unending strife, while Israelis and Palestinians appear intent on annihilating each other. Pakistan just released A.Q. Khan, the scientist who delivered nuclear secrets to North Korea -- the country that's again threatening long-range missile tests. Colombia’s civil war rages, and the "great news" in Mexico is President Felipe Calderon's announcement that drug cartels haven't totally taken over the country.

In America, our apocalyptic symbols are usually subtler -- the birth of octuplets or a restaurant chain's Chicago Seven pizza, which consumerizes a renowned court case into a fast-food dish. But Wall Street and Washington exhibit a more overt Sodom and Gomorrah quality of late, to the point where even business magazines like Portfolio are invoking the A-word.

It's not just the economic turbulence or the corruption that evokes this new darkness -- both have been around for a while. It's the “I feel fine” obliviousness of R.E.M.’s cataclysmic ballad -- the aggressively defiant, adamantly proud ignorance that marks history’s end times.

As wages stagnate in a nation whose median household income is $50,000 a year, one financial executive tells reporters that bankers "can't live on $150,000 to $180,000." Another bemoans efforts to restrict CEO pay by saying that "$500,000 is not a lot of money" -- and the New York Times chimes in by insisting that it’s true: "Half a million a year can go very fast."

Similarly, as lawmakers hand banks trillions of taxpayer dollars, Sen. Kent Conrad, D-N.D., complains that Congress has gotten "very little done to help the financial sector," and Rep. Michele Bachmann, R-Minn., says America should be most worried that "we're running out of rich people." Meanwhile, reporter Rick Santelli is billed as a populist hero for standing amid wealthy commodities traders and telling CNBC’s viewers that the people being thrown out of their homes are "losers."

Hollywood, our cultural mirror, reflects this back as a simultaneous mix of hedonism and fatalism, an MTV beach party at the end of the world. During this economic crisis, we're given "Confessions of a Shopaholic," a comedy film that glorifies overborrowing and overspending. We'll soon be fed the final season of "Lost," a television show whose Benetton models stumble onto a mystery that might destroy the planet. And then it's on to a film version of "The Road," Cormac McCarthy's fable about cannibalism at the end of humanity.

Apocalypse ... it seems so biblical, but suddenly feels so now. And if we don't quickly wake up and turn things around, we will be left to mutter Col. Kurtz's despondent whisper: "The horror ... the horror."

Buffett Says Economy Will Be ‘In Shambles’ for 2009

Warren Buffet really is the man. Cool as a cucumber. But losing hundreds of millions of dollars over the course of 18 months has REALLLLLLlly got to hurt. From Bloomber's website...sj

Buffett Says Economy Will Be ‘In Shambles’ for 2009

By Rick Levinson

Feb. 28 (Bloomberg) -- Billionaire Warren Buffett said the economy will be “in shambles” for the rest of this year as financial firms take losses tied to reckless loans made during the housing boom.

The Standard & Poor’s 500 Index will probably gain in three-quarters of the next 44 years, just as it did in the period since Buffett took over Berkshire Hathaway Inc. in 1965, he said today in his annual letter to the company’s shareholders.

While Buffett and business partner Charlie Munger can’t predict how stocks will perform in 2009, they’re certain “that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond,” he wrote.

Gross domestic product shrank at a 6.2 percent annual pace from October through December, the most since 1982, the Commerce Department said yesterday in Washington. Buffett said the consequences of the U.S. housing bubble are now “reverberating through every corner of our economy.”

Home purchases should involve an “honest-to-God down payment of at least 10 percent,” Buffett said. “Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective.”

Buffett endorsed efforts by the U.S. government to prevent the failure of financial firms including Bear Stearns Cos., which was sold to JPMorgan Chase & Co.

‘Immediate Action’

“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”

Buffett’s letter accompanied the release of Berkshire’s fourth-quarter results, in which net income fell 96 percent to $117 million on losses from derivative bets tied to stock markets. Berkshire shares have fallen 44 percent in the past year as the value of the firm’s top stock holdings dropped and losses increased on the derivatives.

By the fourth quarter of last year, “the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country,” Buffett said. “A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.”