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You are here: Home / Politics / Domestic Politics / Too Little Too Late?

Too Little Too Late?

by John Cole|  April 7, 200910:03 am| 83 Comments

This post is in: Domestic Politics

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I’m not sure how many of you follow Krugman on his blog, but I try to keep up with him. It isn’t that he posts too frequently, but that much of what he posts are things that I just don’t understand. I read it, and I read it again, and I google, and then I think I have an idea what it means, and then I see someone completely contradict it and I give up. I get as much out of the “wonk” posts as Tunch would if I were to read Shakespeare to him.

I do, however, understand (for the most part) graphs:

That is from a series of arguments stating that the world economy is as bad or worse than it was during the Great Depression. At any rate, it looks like other nations are embracing stimulus:

Japan’s central bank presented new steps to encourage lending and its counterpart in Australia cut its benchmark interest rate to the lowest level in nearly half a century Tuesday, highlighting concerns that the global economy remains in dire straits despite signs of a pickup in China and elsewhere.

Japan, in particular, is in a recession that economists say could be the worst since World War II, and both the government and the central bank have repeatedly stepped up their economy-bolstering efforts as the extent of the downturn has become clearer.

I keep reading optimistic reports that we have “turned the corner” or “hit bottom,” but is that really the case? I know that unemployment is a lagging indicator, but could we really be near the bottom?

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Reader Interactions

83Comments

  1. 1.

    DougJ

    April 7, 2009 at 10:04 am

    I’ve heard some really scary estimates about the drop in world GDP for 2009 relative to 2008. It’s something like 15%.

  2. 2.

    Fulcanelli

    April 7, 2009 at 10:06 am

    "Me thinks thee dost protest too much" – Tunch Cole

  3. 3.

    Ed Marshall

    April 7, 2009 at 10:08 am

    This is all making it up as you go along now. We are in uncharted waters.

  4. 4.

    attaturk

    April 7, 2009 at 10:09 am

    "Prosperity is around the Corner!"

    – Herbert Hoover, 1930, 1931, and 1932

  5. 5.

    Hugh

    April 7, 2009 at 10:10 am

    Just grip the car and ride the coaster till it stops. That’s my strategy.

  6. 6.

    Cat Lady

    April 7, 2009 at 10:16 am

    During the Depression most people didn’t own homes, have car loans, student loans and credit cards to default on when they lost their jobs. I think we’re still heading down, down, down.

  7. 7.

    The Other Steve

    April 7, 2009 at 10:17 am

    He seems to be arguing that we could be headed towards a Great Depression except that we already went through one and learned from it, and so we have mechanisms in place to halt bank runs and such.

    If the reforms of the New Deal weren’t there, we’d be fucked.

  8. 8.

    JL

    April 7, 2009 at 10:17 am

    Americablog has an interesting, although scary article by Jeffrey Sachs ripping the Summers/Geithner plan to threads.
    Booman Tribune has an article ripping Jeffrey Sachs to threads.
    Ed Marshall @3 was correct when he said that we are in uncharted territories.

  9. 9.

    whetstone

    April 7, 2009 at 10:17 am

    I have to admit that – and I have no expertise, only spidey sense – that Atrios is right when he writes:

    "The worry is that there isn’t just some weak demand in certain sectors which a bit of adjustment will sort out eventually, but that instead there’s a structural shift which will require a much longer transition period before things get better. I’m worried, anyway."

  10. 10.

    Rick Taylor

    April 7, 2009 at 10:20 am

    The huge banks are still in dire straights. I don’t see how how this is ending before that’s taken care of.

  11. 11.

    clone12

    April 7, 2009 at 10:20 am

    While I don’t disagree with Krugman, I think it is important to note that far larger proportion of the world in 1930 lived under the type of material poverty that would have precluded a significant decline in trade- they weren’t wealthy enough to engage in a large volume of trade!

    I don’t think that explains everything, but I think that should be taken into account….

  12. 12.

    liberal

    April 7, 2009 at 10:20 am

    @JL:

    Booman Tribune has an article ripping Jeffrey Sachs to threads.

    Haven’t read that one, and there are indeed good reasons to dislike Sachs in general, but I saw a Booman post on the financial crisis a few weeks back that was entirely unimpressive and apparently uninformed.

  13. 13.

    The Moar You Know

    April 7, 2009 at 10:21 am

    It will get somewhat worse. The real problem is not that we are going to be staring 50% unemployment in the face, but that the current situation will go on for years.

    The system is broken. All we’re doing right now is mitigation of the worst symptoms. What we have not even started doing yet is fixing the system.

  14. 14.

    edmund dantes

    April 7, 2009 at 10:22 am

    Housing prices are a lagging indicator. Housing prices are also one of the main causes for the trouble we are in. Each drop in housing prices further tips over the boat.

    It’s why we need a plan to wipe the problem off the balance sheets. There are a bunch of different ways of doing this.

    The one Geithner-Summers is proposing involves everyone pretending things aren’t all that bad. Not sure if I read it here, but the huffington post has the best breakdown of the absurdity and game rigging that will go on.

    Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.

    Here’s how. Consider a toxic asset held by Citibank with a face value of $1 million, but with zero probability of any payout and therefore with a zero market value. An outside bidder would not pay anything for such an asset. All of the previous articles consider the case of true outside bidders.
    Suppose, however, that Citibank itself sets up a Citibank Public-Private Investment Fund (CPPIF) under the Geithner-Summers plan. The CPPIF will bid the full face value of $1 million for the worthless asset, because it can borrow $850K from the FDIC, and get $75K from the Treasury, to make the purchase! Citibank will only have to put in $75K of the total.

    Citibank thereby receives $1 million for the worthless asset, while the CPPIF ends up with an utterly worthless asset against $850K in debt to the FDIC. The CPPIF therefore quietly declares bankruptcy, while Citibank walks away with a cool $1 million. Citibank’s net profit on the transaction is $925K (remember that the bank invested $75K in the CPPIF) and the taxpayers lose $925K. Since the total of toxic assets in the banking system exceeds $1 trillion, and perhaps reaches $2-3 trillion, the amount of potential rip-off in the Geithner-Summers plan is unconscionably large.

    The earlier criticisms of the Geithner-Summers plan showed that even outside bidders generally have the incentive to bid far too much for the toxic assets, since they too get a free ride from the government loans. But once we acknowledge the insider-bidding route, the potential to game the plan at the cost of the taxpayers becomes extraordinary. And the gaming of the system doesn’t have to be as crude as Citibank setting up its own CPPIF. There are lots of ways that it can do this indirectly, for example, buying assets of other banks which in turn buy Citi’s assets. Or other stakeholders in Citi, such as groups of bondholders and shareholders, could do the same.

    Edit — Block quote all screwed up. Also haven’t seen the Booman response either. I’ll have to go and see if I can find it.

  15. 15.

    liberal

    April 7, 2009 at 10:22 am

    @clone12:

    I think it is important to note that far larger proportion of the world in 1930 lived under the type of material poverty that would have precluded a significant decline in trade…

    That’s true, but contrary to all the stuff about the new global world, there’s been quite bit of trade in the past, IIRC, e.g. late nineteenth century, even on a percentage basis of GDP.

  16. 16.

    liberal

    April 7, 2009 at 10:25 am

    @edmund dantes:

    Since the total of toxic assets in the banking system exceeds $1 trillion, and perhaps reaches $2-3 trillion, the amount of potential rip-off in the Geithner-Summers plan is unconscionably large.

    For some bizarre reason there’s a large fraction of commenters at this blog who are otherwise apparently sane, who say things like "Geithner is OK, because the sky is falling and if he fixes things, then that’s good." To them, the taxpayer rip-off issue isn’t relevant. And pity the poor bondholders!

  17. 17.

    CJ

    April 7, 2009 at 10:25 am

    This may be my own optimism coming through, but at least in terms of public opinion, we seem to have hit an inflection point in terms of the worsening of the economy, i.e. the downturn is no longer accelerating and appears to be decelerating a bit. Even so, we’ve got a lot of downward velocity and it will take a long time to reverse that as well. The interesting thing is that we will be recovering from this for a long time to come and I wonder what institutions and programs will die or be irrevocably changed as a result of prolonged stress.

    CJ

  18. 18.

    Joshua Norton

    April 7, 2009 at 10:30 am

    Those annoying loud guys from CNBC keep saying the recession is over. Someday they may be right. I just hope it’s not because the official depression has begun.

  19. 19.

    liberal

    April 7, 2009 at 10:38 am

    @JL:

    Booman Tribune has an article ripping Jeffrey Sachs to threads.

    OK, having skimmed the BT post, I still have the impression that Booman doesn’t have any idea what he’s talking about.

    So sad.

  20. 20.

    joes527

    April 7, 2009 at 10:43 am

    @The Other Steve:

    He seems to be arguing that we could be headed towards a Great Depression except that we already went through one and learned from it, and so we have mechanisms in place to halt bank runs and such.
    If the reforms of the New Deal weren’t there, we’d be fucked.

    This assumes that managing the world economy is a solved problem.

    Why do you have any confidence that we aren’t in the middle of some other mode of complete breakdown that can’t correctly be characterized as "resession" or "depression" but can still be correctly characterized as "catastrofuck?"

    Anyone who thinks "we know how to stay out of the great depression, so we are safe" is looking at this the wrong way.

  21. 21.

    Karmakin

    April 7, 2009 at 10:44 am

    Frankly with all this, nobody has any clue what they’re talking about.

    There really is no good option here. There’s not even a least bad option. That’s how dire it really is.

  22. 22.

    Tim H.

    April 7, 2009 at 10:45 am

    Go with the graph. It looks to me that, as predicted by some, the basis for the global economy for the last twenty years has imploded. That being the U.S. buys other people’s stuff and pays for it by printing pieces of paper. Nobody in charge can imagine an alternate that allows them to make as much money, so for now they’re pretending this is just a temporary hiatus. While they’re pretending they’re grabbing as much money as they can just in case they’re wrong.

  23. 23.

    r€nato

    April 7, 2009 at 10:47 am

    @The Other Steve:

    If McCain/Palin had won the election, we’d be fucked.

    fixt.

  24. 24.

    Hyperion

    April 7, 2009 at 10:48 am

    @Ed Marshall:

    We are in uncharted waters.

    i’d say we are in unlabelled chart waters.
    no one can understand a graph when what’s being plotted on the y axis is not revealed. oh, well.

  25. 25.

    Comrade Dread

    April 7, 2009 at 10:49 am

    I think the best case scenario is that all of the spending stops the decline toward the end of 2009 and we start to see some recovery in 2010.

    Worst case scenario, the pension crisis hits, followed by the worst case scenario for entitlement programs, followed by the Chinese opting not to buy our bonds and dump the dollars they have, followed by hyper-inflation of Zimbabwean levels.

    However, at this time, I think it’s more likely that this depression will continue at least through the end of 2011 (possibly through 2015), as Americans wake up from their consumer debt orgy, realize that good times don’t always last, scale back their consumption and save more.

    Considering that our economy has been based for so long on consumer spending, this is probably a healthy correction in the long run which will cause a lot of pain and misery in the short run.

  26. 26.

    Xenos

    April 7, 2009 at 10:52 am

    It is not the bottom, or the beginning of the bottom, but the end of the beginning of the bottoming out.

    This is not even a dead-cat bounce in the markets – it is a mortally wounded cat bouncing off a ledge 2/3 of the way down bounce. When we hit the bottom, the true bottom, there will be no bounce, just Wile E. Coyote sinking into a coyote-shaped hole in the ground, with a hand rising up, holding a sign spelling "help!" or "ouch!"

  27. 27.

    r€nato

    April 7, 2009 at 10:52 am

    personally I think the bottom of the recession is in sight, though there is certainly more bad news to come – another wave of toxic mortgage resets, the developing commercial real estate bust – and more dips in the stock market to come (I’m hoping the current rally holds and continues for a couple more weeks… then I am dumping a bunch of stock in a certain high-tech company, counting on a downward draft in prices to jump back in).

    However, even if things stop getting worse, we’re not going to see a real pickup in growth and jobs for at least another year. There’s no way this is going to be a short, sharp shock like people are hoping.

    And anyone holding on to real estate as an investment… better be in a position to sit tight for about 5 years, minimum.

  28. 28.

    Xenos

    April 7, 2009 at 10:54 am

    @Joshua Norton: Well, Jim Cramer declared the depression over last week, so you know what that means…

  29. 29.

    Comrade Darkness

    April 7, 2009 at 10:54 am

    For a second there, I thought we were the blue line and I said, hey, looks like a bottom! Then I noticed the red line. :-(

    @The Other Steve, if more of the reforms from the New Deal had been left intact, we wouldn’t be in this position.

  30. 30.

    MaryKaye

    April 7, 2009 at 10:55 am

    Bottom? Highly unlikely.

  31. 31.

    r€nato

    April 7, 2009 at 10:57 am

    @Comrade Dread:

    followed by the Chinese opting not to buy our bonds and dump the dollars they have, followed by hyper-inflation of Zimbabwean levels.

    that’s certainly a worst-case scenario, but so is invasion by aliens.

    Neither is likely to come to pass. The Chinese would be shooting themselves in the foot if they abandoned confidence in the dollar. The noises they’ve been making lately are those of a worried investor in our economy. If the US economy spends several more years in the dumps and the deficit spending doesn’t retreat to more realistic levels, then yes I think China would begin to actively explore an alternative to the dollar.

    Right now, they can’t do that and even so, there is still no good alternative to the dollar. The strongest competitor to it, the euro, is a distant 2nd choice, useful for nothing other than as a way to pressure the US government and the Fed.

  32. 32.

    Poopyman

    April 7, 2009 at 10:59 am

    Sorry to go OT John, but I didn’t want to bury this down below:

    Pittsburgh police shoot man who fired at them
    Tuesday, April 07, 2009
    By Jim McKinnon, Pittsburgh Post-Gazette

    An armed man was critically wounded by police gunfire early today when officers said he pointed a pistol at them in Fairywood.

    Luis Morales, whose age and address were not immediately given, underwent emergency surgery for a bullet wound of the torso, police said.

    Neither of two officers involved in the shooting was injured.

    …

    I expect police all over to be jittery from now until who-knows-when.

  33. 33.

    toujoursdan

    April 7, 2009 at 11:01 am

    The bigger question is whether a recovery is a good thing. The only reason oil is hovering around $50/barrel is because demand is down. Once the major economies start to recover and demand rises, it is going to be back up at $100+/barrel which is going to inflict the same economic damage we saw in Q2 2008 prior to the last collapse, and on and on. Needed infrastructure expansion (development of oil refineries, exploration and development of new oil fields, etc.) has not occurred because it wasn’t profitable, so oil supply won’t keep up with demand and will lead to another oil crisis.

    Part of the problem is that people associate "recovery" with the good times of the late 1990s and believe that those good times will roll again. But the world is a different place. China and India are bigger players and Saudi Arabia and Russia are keeping more of their oil at home for development and transition to a post oil economy.

    And other commodities are becoming more scarce as well. The ugly truth is that world is a finite place, with a population that is expected to rise to 1.5 times its current level by 2030, all of whom want to live like Americans. The problem is that many of these people live in economies that are flush with real cash (as opposed to American debt) and can drive harder bargains. Any recovery is going to bring on some painful inflation, which will probably lead to another recession.

    The real problem is with economic orthodoxy. Economists base their projections on the assumption that commodities will meet demand. But the writing is on the wall that this isn’t the case anymore.

  34. 34.

    zzyzx

    April 7, 2009 at 11:12 am

    The other thing that makes understanding hard is that there’s a trend on blogs that understand the problem to try to outdo themselves with pessimistic predictions. It’s more interesting to talk about civilization collapsing than a 2-3 year recession. I’ve seen this since the Y2K days. Maybe this is the time where the naysayers are correct – keep predicting the worst and eventually it’ll come true – but I’ve seen the calls be wrong so many times in the past that it’s hard to take it seriously when it’s happening again.

  35. 35.

    Face

    April 7, 2009 at 11:15 am

    This may be my own optimism coming through, but at least in terms of public opinion, we seem to have hit an inflection point in terms of the worsening of the economy,

    I dont see this. Just wait until GM declares Uncle.

    And god damn, that gaming of the Summers plan seems criminal.

  36. 36.

    The Grand Panjandrum

    April 7, 2009 at 11:15 am

    OT: The VT House and Senate have just overridden the governor’s veto of the marriage equality bill. I listened to the final House vote live.

  37. 37.

    Shinobi

    April 7, 2009 at 11:17 am

    Y’know I just have to say this, and it probably seems obvious. But when all is said and done, that red line is not going to look anything like the blue line. And that’s not because this recession is worse than the great depression or better or blah blah blah, It’s because history is not an accurate predictor of the future. Or to use a much garbled phrase from the election, past is prologue, but not the future.

    If I were going to forecast the stock market, or gdp, world trade volume, or any other metric, I would want to look at the inputs to that metric. And the key driver of world trade is not time, it is demand, supply, inflation, lots of other things actual economists understand better than I do. (I’m a lowly statistician.)

    In the article Krugman links they discuss the policy differences between TGD and now, and talk about how not only has the rate of decline differed, but the policy responses have differed this time around. And I think that is going to make a difference, whether it improves things for the better or the worse.

    While comparing this recession to TGD is an interesting exercise, I think it is no more than that. The Great Depression taught us a lot, but we have a completely different world economy now than we did then, and it is going to behave differently. If we want to analyze what is happening or what is going to happen we need to analyze the economy we have, its own inputs, not look at ancient time series and scare ourselves because this recession looks different.

  38. 38.

    BruceFromOhio

    April 7, 2009 at 11:26 am

    @Hyperion:

    i’d say we are in unlabelled chart waters.

    Mos def. It’s evident that propping the ‘old’ system is NOT the way forward, and that’s about all.

    Necessity, the mother of invention? C’mon, Mom, it’s time!

  39. 39.

    The Moar You Know

    April 7, 2009 at 11:38 am

    The Great Depression taught us a lot, but we have a completely different world economy now than we did then, and it is going to behave differently. If we want to analyze what is happening or what is going to happen we need to analyze the economy we have, its own inputs, not look at ancient time series and scare ourselves because this recession looks different.

    @Shinobi: You can’t say this often or loudly enough. This is not 1932. It’s going to be quite different.

  40. 40.

    Scott H

    April 7, 2009 at 11:39 am

    Comparisons to ZOMG! The Great Depression! strike me as a typical media need for an easy narrative – not particularly useful to analysis.

    Things will be tight for quite a while. No 24 hour news channel is going to be happy when every half hour doesn’t have a corner to be turned or a precipice to fall over.

  41. 41.

    J. Michael Neal

    April 7, 2009 at 11:43 am

    And god damn, that gaming of the Summers plan seems criminal.

    Well, sure, but it relies upon a couple of assumptions for which there isn’t much evidence. If you actually read the white paper on the plan, you’ll find that the Treasury has to specifically approve bidders. When someone argues this scenario, the implicit assumption is that the Treasury wrote this part into the plan for no particular reason, and has no intention of actually doing it.

    Why don’t we wait and see how the program is administered before jumping off a cliff.

  42. 42.

    srv

    April 7, 2009 at 11:50 am

    Reposting from the original paper:

    To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

    Sorkin on the PPIC stuff.

    Meredith Whitney on CNBC, "housing prices to drop another 30%"

    Many people have already gone silently, and I’ve received several requests to be a reference in the last week from people who know they’re going to be unemployed shortly. These are, to put it mildly, the best and the brightest.

    The orchestra is just starting to get warmed up here. It’s going to be a very long opera.

  43. 43.

    srv

    April 7, 2009 at 12:01 pm

    Not that I like Sorkin, but a quote from article:

    The plan hinges on the unique, and somewhat perverse, way the F.D.I.C. values the loans. It considers their value not as the total obligation, but as “contingent liabilities” — meaning what it expects it could possibly lose. As the F.D.I.C’s charter dictates: “The corporation shall value any contingent liability at its expected cost to the corporation.”

    So how much does the F.D.I.C. think it might lose?

    “We project no losses,” Sheila Bair, the chairwoman, told me in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said. (Well, that’s one way to stay under the borrowing cap.)

    I believe Blair like I believe the Bush guy on Nightline who repeatedly insisted to Koppel that the Iraq war was going to cost a few billion and was going to pay for itself.

  44. 44.

    jpoulos

    April 7, 2009 at 12:04 pm

    I don’t think we’ve reached bottom, I think we’ve reached the end of the media’s short attention span. There’s so much media out there, and so much time to fill on the 24-hour networks, that it gets tedious to keep reporting the same story. They’re sick of reporting how bad things are, and desperately want to change the story. (Besides, it’s bad for ratings.)

    The media today is designed to handle a story that lasts 24 or 48 hours. It doesn’t know how to handle a story that lasts 18 or 36 months.

  45. 45.

    Shinobi

    April 7, 2009 at 12:06 pm

    Thanks TMYK. The comparisons to the great depression are starting to make me stabby. I don’t mind using it as a benchmark, but omg.

  46. 46.

    Bill H

    April 7, 2009 at 12:07 pm

    He seems to be arguing that we could be headed towards a Great Depression except that we already went through one and learned from it, and so we have mechanisms in place to halt bank runs and such.

    If the reforms of the New Deal weren’t there, we’d be fucked.

    There is comfort in that, especially in the part about preventing bank runs. All good stuff.

    What makes it uncharted is that in the Great Depression the unemployed did not have the debt load that they do now, and that debt could constitute the "bank run" of this crisis. Capitalization of banks is a bigger issue today. International trade is a vastly different equation now, since the US lives on imports to a much greater degree than in 1930 and our dependence on them is more significant. Our manufacturing base was intact but idle in 1930, it is not intact today.

    Are things going to get worse? Don’t know, but it’s not advisable to say that the measures applied as the New Deal will prevent it. Many of the ones that have not been vitiated do not apply.

  47. 47.

    Anoniminous

    April 7, 2009 at 12:12 pm

    The first trick to understanding is to find and focus on the Properties of the what’s-going-on instead of getting fixated on the Attributes. Properties have to be present and affective whereas Attributes may, or may not.

    The second trick is grasping the Economy is a unified dynamic. By that I mean action, reaction, and interaction takes place on a scale from micro through meso to macro; in English ;-) one way to put it: Individual consumer – US financial system – Global Economy, tho’ one can slice and dice it in myriad ways.

    The barrier to understanding follows …

    First, the news media are fixated on the Attributes as guided by …

    The ruling Theory – Neo-Classical Economics – which, to put it bluntly, is bullshit. Without going into a lot of argy-bargy I’ll note their chosen mathematical tools presuppose linear relationships and leave it at that.

    No, I won’t.

    Here are the three basic Assumptions of Neo-Classical Economics (from wikipedia):

    1. People have rational preferences among outcomes that can be identified and associated with a value.
    2. Individuals maximize utility and firms maximize profits.
    3. People act independently on the basis of full and relevant information.

    Contradict any of these, or one significant part of one of these, and NCE crumbles. (I appeal to the Rules of Logic.) Which I will now do …

    How many people who purchased a home in 2008 knew the relative advantages of their purchase and renting?

    If you say ANYTHING less than "all of them" Assumption 3 goes out the window.

    Which leads to:

    The lack of understanding that Mr. Cole is continually posting stems from the Model the media is pushing is straight from La-La Land. The Model itself makes no sense thus the explanation based on that Model CAN’T make sense.

  48. 48.

    srv

    April 7, 2009 at 12:14 pm

    @Hyperion:

    i’d say we are in unlabelled chart waters.
    no one can understand a graph when what’s being plotted on the y axis is not revealed. oh, well.

    If the world is flat, shouldn’t we have fallen off the edge already?

  49. 49.

    srv

    April 7, 2009 at 12:17 pm

    @Anoniminous: I’m not sure if you’re talking about post-Autistic "economics" or Kindle CSS support.

  50. 50.

    Shinobi

    April 7, 2009 at 12:20 pm

    Here are the three basic Assumptions of Neo-Classical Economics (from wikipedia):

    1. People have rational preferences among outcomes that can be identified and associated with a value.
    2. Individuals maximize utility and firms maximize profits.
    3. People act independently on the basis of full and relevant information.

    In other words, assume a Spherical Cow.

  51. 51.

    Michael D.

    April 7, 2009 at 12:20 pm

    I get as much out of the “wonk” posts as Tunch would if I were to read Shakespeare to him.

    Or feed him salad.

  52. 52.

    Nemoudeis

    April 7, 2009 at 12:23 pm

    On the plus side, we could claim that the graph indicates that we’ve already gone from June 1929 to February 1932 in less than a year! At this rate we should be at mid-1932 levels by October of this year. From that point we should be able to just round the horn and Big Mo ourselves back up to 1937 by sometime around August of 2011!
    Simplistic and stupid? Well, yes. But better than nothing; and it beats walking around with a gun in my mouth for the next decade and a half.

  53. 53.

    J. Michael Neal

    April 7, 2009 at 12:32 pm

    I get as much out of the “wonk” posts as Tunch would if I were to read Shakespeare to him.

    Cats would root for Iago.

  54. 54.

    Church Lady

    April 7, 2009 at 12:38 pm

    No, we haven’t hit bottom yet. We still have a lot more busts to come – commercial real estate, credit card debt, auto loan debt and student loan debt. Until we stop shedding jobs and actually start adding net job gains, this will continue.

    The oldest has a number of friends set to graduate in May. Every single one of them is going on to graduate school because they feel that there are no jobs to be had and, even if there were, they would be going to others with a whole lot more experience. Almost all of them are borrowing the money to fund their post-graduate educations. Here’s hoping that there will be entry level jobs available two years from now so that they can start to pay back their student loans.

  55. 55.

    Anoniminous

    April 7, 2009 at 12:41 pm

    @srv:

    Making "sense" – speaking loosely – of a galumphing horde of incoming data is what I do. (For a low value of achieving Do-ness.) :-D

    And, yes, in a former life I was in Advanced Applications Support on the other end of the telephone telling my fellow engineers to "RTFM, moron" … but in a nice way.

  56. 56.

    terry chay

    April 7, 2009 at 12:47 pm

    @Hyperion: Quite witty.

    The vertical axis is a normalized measure of the three month moving average of world trade "volume" compiled by the Netherlands Bureau of Economic Policy Analysis

  57. 57.

    Seanly

    April 7, 2009 at 12:50 pm

    @Hugh:

    Can I close my eyes on this ride?

    Money quote from Krugman:

    It’s only to the extent that we understand these things a bit better than our grandfathers — and that we act on that knowledge — that we have any real reason to think this time will be better.

    (emphasis by me)

    Will we act on that knowledge? Obama has tried, but I am still of the mind that it is too little. Or maybe they know we will have to have more stimulus in the form of the next transportation/highway spending & reauthorization plan (due in fall).

    Also, even if Obama wants to act on that knowledge, we have the wingnuts lining up against what little we’ve done(as evidenced by later posts) or crazed Republicans like my lousy Gov Sanford opposing what Obama does.

    Oh and one more thing: at some point, taxes will have to go up. I would opt for increases in the marginal rates, but expect that at the state level it’ll be increases in fees and sales taxes. Or maybe this time we’ll eat the rich & return to more sensible & progressive taxation.

  58. 58.

    srv

    April 7, 2009 at 12:54 pm

    @Anoniminous: You and demi should get a room, if you aren’t in the same one already.

  59. 59.

    Brachiator

    April 7, 2009 at 12:56 pm

    I keep reading optimistic reports that we have “turned the corner” or “hit bottom,” but is that really the case? I know that unemployment is a lagging indicator, but could we really be near the bottom?

    How could anyone know? In the US, we still have not digested the last round of job cuts. And even in the past, the Great Depression surprised everyone since it lagged the stock market crash of 1929.

    I don’t understand how anyone, even Krugman, can pretend that historical graphs are predictive of the future, or that just because we know about the great depression, we understand exactly how the current financial mess will unfold. This would be like looking at graphs of the economic crashes that happened during the 1870s and using them to determine when the US got out of the Depression of the 1930s.

    This is what worries me about folks from Krugman to Paulson, this fixation on avoiding what happened during the Great Depression, which may not be the same thing as understanding and dealing with what is happening now.

  60. 60.

    gopher2b

    April 7, 2009 at 12:59 pm

    For all of Krugman’s virtues, I don’t think I’ve ever heard him say a positive thing about anything ever.

    The steeper decline is a function of the modern world. News of a shitty economy can travel the globe in a second, its repeated over and over and over again, people stop spending sooner and employers know they have cover to lay people off. My personal belief is that the declines and booms are more dramatic and faster than they were 80 years ago.

    That being said, the bank and household balance sheets are so out of whack it will take a while for "full recovery." It’s "over" for the U.S. in the sense we will likely not be top dog anymore but is that such a bad thing. The Brits seem happy enough.

    One last thought regarding the banks: they will be the only profitable industry in 2009. My savings account is getting .02%. How do you not make money when you are pulling in money for free.

  61. 61.

    Montysano (All Hail Marx & Lennon)

    April 7, 2009 at 12:59 pm

    James H. Kunstler calls it "The Long Emergency", which is an apt term. In addition to the obvious financial fuckery, we’re facing climate change, and the decline of the Petroleum Age. It’s a perfect storm.

    5+ years ago, the concept of Peak Oil was tinfoil-hat stuff, and not acceptable in polite company. Today, Matthew Simmons goes on CNN and no one is bothered about it.

    Given that, however, neither Obama nor any serious politician can offer a realistic assessment of our future without being labeled a nutjob. That assessment, IMHO: that we will never return to the go-go prosperity of the ’90s, and that the world to come will be very different. Not necessarily worse in my view, but very different.

  62. 62.

    bayville

    April 7, 2009 at 1:00 pm

    I know that unemployment is a lagging indicator, but could we really be near the bottom?

    No.

  63. 63.

    HyperIon

    April 7, 2009 at 1:03 pm

    @terry chay:

    Quite witty.

    but only you got the joke!
    (i can’t decipher the comments of the two others above.)

    i’m a bit of a Tufte fan and cringe daily at the chart junk on display. then there’s the lack of axis labels.

    as someone who analyzes (chemical) data for a living, i despair. innumeracy is gonna get us.

  64. 64.

    Roq

    April 7, 2009 at 1:14 pm

    It’s unlikely we’re at bottom because those lagging indicators will continue to drag things down a bit, but it’s getting safer ans safer (even Krugman accepts the possibility) to call it "bottomish."

    Just keep in mind, though, that things are still fragile. A major failure for Geithner’s plan (i.e., like if investors won’t invest) or a major bankruptcy could get the ball rolling again.

  65. 65.

    Wonk

    April 7, 2009 at 1:30 pm

    I’m coming in late here, but I’ve always thought of Krugman as constantly crying "Wolf" – pretty much a concern troll.

    That opinion was reinforced when I read the article about him in Newsweek last week:

    Krugman has a bit of a reputation for settling scores. "He doesn’t suffer fools. He doesn’t like hauteur in any shape or form. He doesn’t like to be f––ked with," says his friend and colleague Princeton history professor Sean Wilentz.

    And even more, this:

    At an economic conference in Tokyo in 1994, Krugman spent so much time berating others that his friends purposely started telling him things that they knew weren’t true, just to see him get riled up. "He fell for it every time," said a journalist who was there but asked not to be identified so she could speak candidly. "You’d think that eventually, he would say, ‘Oh, come on, you’re just jerking my chain’."

    What a wanker.

  66. 66.

    Shinobi

    April 7, 2009 at 1:33 pm

    This is what worries me about folks from Krugman to Paulson, this fixation on avoiding what happened during the Great Depression, which may not be the same thing as understanding and dealing with what is happening now

    This.

  67. 67.

    gex

    April 7, 2009 at 1:38 pm

    @Brachiator: I agree with all y’all who point out that this is not the Great Depression, but this is economics and public policy. What else is there to work from than studying the past and trying to apply what we learned? A large part of our current problem stemmed from the "it’s different this time" attitude.

    So I’d argue caution in applying the lessons and being aware that there are differences. But I don’t think looking back to the Great Depression to guide our policy going forward is a bad thing.

  68. 68.

    Anoniminous

    April 7, 2009 at 1:46 pm

    @HyperIon:

    innumeracy is gonna get us

    Ain’t that the ever-lovin’ Truth.

    srv:

    Unless demi has four legs, is covered in fur, and goes "woof" I don’t think we share a room. I’m semi-retired, working on my own stuff mostly.

    And every return to Silly-Con Valley reinforces why I left.

  69. 69.

    different church-lady

    April 7, 2009 at 1:58 pm

    We’ve not turned the corner, nor hit bottom.

    What we have done is slam the brakes on and stopped the free-fall.

    You have to stop the car first before you can throw it in reverse.

    That’s such a simple concept I don’t know why more people don’t consider it.

  70. 70.

    Olliander

    April 7, 2009 at 2:07 pm

    And other commodities are becoming more scarce as well.

    The farmers of the world will be far better off than the bankers within 10 years time, and they will be driving the lamborghinis. Buy commodities, commodity-related indexes and/or companies.

    This trend of trying to prop up the financial system with valueless cash cannot and will not sustain itself. We haven’t even come close to the dry heaves necessary to rid the financial system of the bugs that it has. But our leaders continue down the same path, squeezing every drop of liquidity out of every possible avenue it can think of, even where there is none. Case in point.

    The housing market is nowhere near a bottom, with months, if not a year of inventory still on the market, a coming new wave of ARMs resets and foreclosures continuing to creep up. Until the financial system and housing market recovers, the "bottom" will elude us.

  71. 71.

    TenguPhule

    April 7, 2009 at 2:14 pm

    What we have done is slam the brakes on and stopped the free-fall.

    Actually, we’ve deployed the emergency chutes and are praying we have enough time left that we don’t turn into a splat on the pavement.

  72. 72.

    TenguPhule

    April 7, 2009 at 2:16 pm

    The farmers of the world will be far better off than the bankers within 10 years time, and they will be driving the lamborghinis.

    Not really. The fertilizer/seed/feed companies will own them lock, stock and barrel.

    Sharecroppers, the next big thing.

  73. 73.

    BenA

    April 7, 2009 at 2:44 pm

    Krugman is a drama queen. He’s almost undoubtably correct in his assessment, or rather I’m definitely not equipt to counter his arguments, but he’s still a drama queen.

    I’ve got mixed feelings about Krugman… When he talks about allowing the banks to fail he sounds a little bit to much like the Republicans when they talk about letting Chrysler and GM go into bankruptcy.

    Maybe I’m deluded but I kind of hope that Obama is trying to find a middle way and is just buying time now… and I think there’s a better than good chance that when things are all said and done Citi and BoA will no longer exist or will no longer exist in the form they do now.

  74. 74.

    Shinobi

    April 7, 2009 at 2:55 pm

    Gex:

    A large part of our current problem stemmed from the "it’s different this time" attitude.

    I think another large part of our problem stemmed from people innumeracy, and inability to understand when data was valid, and useful, and when you needed to do some actual thinking. From that perspective continuing to use data from the great depression as "The Comparison" is a symptom of the same problem.

    For instance, my personal favorite "housing prices have always gone up therefore they WILl always go up." This is one of the major assumptions that contributed to this mess. It was no big deal for someone to take a mortgage they couldn’t afford because the value will go up and they will have plenty of equity.

    There were also tons of financial instruments and risk assesment figures that were used improperly by people who didn’t understand them. The big trend has been and still is to hire math people to do some math so they can spit out numbers that mean "good" or "bad." No one wants to take the time to understand that this "good" figure only means good 99% of the time and that when that 1% hits you’re going to be SOL.

    No one wants to take the time to understand what actually valid predictors of housing prices exist, just like no one wants to take the time to look at what is actually happening in this recession and what that will mean going forward. They want to look at the past, at some pretty graph and say "well, this is what happened last time, so that’s what will happen now."

    My objection is not at examining the policies and actions from the great depression and what affects they had. I think that is valuable. My objection is to treating data from the great depression, or indeed, any other recession, like it tells what is going on, or what is going to happen in THIS recession/depression.

  75. 75.

    Elie

    April 7, 2009 at 3:29 pm

    Great comments and discussion today on this thread.

    My head is spinning with all of the theories and its difficult to know (given my knowledge and experience being outside the financial world) what is just about right and what is bs.

    One thing that has made it even harder to weigh options is that so much of the time, the conversation turns to some sort of ad hominem on either Geithner, Krugman, some other person or Obama. What that tends to do (and I am included in that practice, sorry to say) if inflame the emotion around this very complex issue and then obscure any change of laying out the provisions of all the alternatives dispassionately. The Geithner plan is preceeded by a slur on his affiliations with Wall Street and Krugman is a narcissistic asshole so whatever he says can’t be right.

    Chances are, there is at least a little right about each alternative but we have no way of knowing yet, which approach is best given the many variables that are contributing to our situation and given our relative impatience, if not for an outcome, for at least a clear sign of whether we are going in the right direction. As with many complex issues, the arrows frequently point in many directions and there are conflicting signs. That makes us more frustrated and impatient and we tend to ratchet up the language accordingly.

    Who knows when this will resolve. The horizon line is huge and encompasses not just the US but the world. Many of us do not trust or want the same old economic system that we had, that got us here. Replacing it, however, is not a clean swap out process but fraught with politics and subterfuge, bringing us back to being impatient and frustrated and angry…

  76. 76.

    asiangrrlMN

    April 7, 2009 at 3:47 pm

    I think one of the problems is that this is such a huge and intertwined crisis, and it’s not like any we’ve had before. As a whole, we don’t do well with uncertainty, and certainly not on this scale. I don’t think we’ve hit bottom, but I can’t say that with any veracity, either. It really does feel like everyone is giving his or her best educated guess and hoping we collectively hit the nail on the head.

    That said, Paul Krugman is my economic crush. He makes me see numeric starbursts whenever he’s on Olbermann’s show or Rachel’s show.

  77. 77.

    J. Michael Neal

    April 7, 2009 at 3:54 pm

    @Wonk: I keep trying to tell people that Krugman is an economist. That means that he is, pretty much by definition, a complete asshole. Good, bad, right, left, right, or wrong, that’s one thing they all have in common.

  78. 78.

    Zandar

    April 7, 2009 at 4:50 pm

    Long story short (skipping the MEGO stuff.) We’re nowhere near the bottom, because too much debt-based stuff (credit cards, housing prices, commercial real estate) still have too much value to lose.

    It will go splat. Our standard of living goes splat with it. America being forced to live within its means is going to be an ugly, ugly situation.

  79. 79.

    Elie

    April 7, 2009 at 5:17 pm

    Zandar:

    You may be right…that we are not near bottom and all the value has to leach out. I guess that I am hoping (certainly not knowing), that the play out is long enough to soften some of the "splat" that you talk about in your second paragraph.

    That said, though comeupance sandwich may be what we eat, there can be no pleasure in the splat, which will disproportionately affect the weakest – as usual. That alone makes policy that can affect the speed to the bottom extremely important — more erring on slow and easy even if it in some ways costs more to the tax payer. There will be no low cost alternative in any case, i believe.

    I am also hopeful, that somewhere in this massive change, we actually maybe do some things right and are the better for it, rather than splat in the worst sense. I tell you one thing, our environment could use a little break on development for example- especially in many sensitive areas that were being evaluated for new development. I think that it would be wonderful to have more high density development in cities rather than continueing to spread out – despoiling our undeveloped forests, seashores and eating up our farmland. Anyway, something to think about…

  80. 80.

    HyperIon

    April 7, 2009 at 8:23 pm

    @Zandar:

    America being forced to live within its means is going to be an ugly, ugly situation.

    Ahem, I have always lived within my means. And always will.

    I just hope my hard-earned dollars do not get eated by hyperinflation. That would be an ugly situation and I would be VERY pissed. Homicidally pissed perhaps because I have watched a lot of assholes spend money they didn’t have and generally party very hard. I did neither.

  81. 81.

    BruceFromOhio

    April 7, 2009 at 8:51 pm

    I just hope my hard-earned dollars do not get eated by hyperinflation.

    I’m thinking the way to combat that is to buy something arable and tillable on credit TODAY, and pay it back with the hyperinflated dollars I earn selling organic vegetables for the next 50 years.

    Yeah, suddenly that subsistence farming thing looks downright attractive …

  82. 82.

    KDP

    April 7, 2009 at 9:09 pm

    Rasmussen Reports just called me to participate in phone survey. Questions below:

    Rate current economy – excellent/good/fair/poor (me-poor)
    Is economy getting better, worse, same (me-same)
    r u man woman (Me-woman)
    rate personal finances (good)
    r ur personal financesbetter/worse/same (same)
    do you expect to spend more less same (same)
    have you had added expense impact lifestyle (no)
    after bills, do you have $ to save (yes, but I plan it that way)
    will you save more/less/same (same)
    if no income how long maintain current lifestyle (6 months, planned it that way and I would remove some discretionary)
    is ur household exp spending more/less/same (same)
    discretionary spending more/less/same (less)
    home improvement spending more/less/same (same)
    other purchase travel education more/less/same (same, tuition just keeps coming)
    do expect to continue to save (yes)
    married (no, partnered but they didn’t ask)
    children

  83. 83.

    Panurge

    April 7, 2009 at 10:04 pm

    …climate change, and the decline of the Petroleum Age.

    Seems like the latter would be just the thing for the former–the perfect example of that "crisis=opportunity" meme they kept talking about a few months ago.

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