Showing posts with label stimulus plan. Show all posts
Showing posts with label stimulus plan. Show all posts
Thursday, August 27, 2009
Baseline Scenario
Very, very good today, with some points we should never forget:
The Baseline Scenario
--------------------------------------------------------------------------------
Firefighter Arson And Our Macroeconomic Policymakers
Posted: 27 Aug 2009 04:49 AM PDT
Firefighter arson is a serious problem. The U.S. Fire Administration, part of Homeland Security, concluded in 2003, “A very small percentage of otherwise trustworthy firefighters cause the very flames they are dispatched to put out” (p.1). Illustrative and shocking anecdotes are on pp. 9-15 of that report, as well as here and here.
Macroeconomic policy making now has a similar issue to confront.
As the economy begins to stabilize and the financial system shows signs of recovery, accolades start to shower down on various officials, including most recently Ben Bernanke, who was rewarded this week with renomination – and almost certain confirmation – to a second term as chairman of the Federal Reserve Board of Governors.
Bernanke is widely seen as our financial firefighter in chief (BusinessWeek; USA Today) Similar terms are used to describe Treasury Secretary Tim Geithner and the entire gigantic financial rescue effort. Larry Summers, head of the White House National Economic Council and administration economic guru-at-large, is applauded as an “experienced crisis manager”, which amounts to the same thing in this context.
If any of this sounds familiar, you’re probably remembering the famous cover of Time magazine from November 1999, which depicted Alan Greenspan, Robert Rubin, and Summers as “The Committee To Save The World.” The idea then was that crises in Asia, Latin America, and Russia had spilled over to US financial markets, most notably in the near failure of Long Term Capital Management, but disaster had been averted by – essentially – the financial firefighting abilities of this troika.
But what if the financial crises in recent decades – you can add the dotcom bubble, the S&Ls fiasco, and various emerging market debt crises to our recent housing and banking disaster – is not a sequence of random unfortunate events, but rather the product of a dangerous financial system? Given that today’s firefighters also previously held responsibility for overseeing this system, both recently and as long ago as the early 1990s, this question is relevant – particularly as the very same team, in various combinations, repeatedly pronounced on the system’s fundamental soundness.
Some of today’s firefighters pushed hard for deregulation of derivatives markets in the 1990s, and this now proves to have been an important cause of the crisis (Summers and others). Others had responsibility for the solvency of Wall Street over the past half decade, yet disguised all potential warnings in layers of impenetrable opaqueness (e.g., Geithner; see p.91 in David Wessel’s bestselling In Fed We Trust, Crown Business, 2009). Still others pronounced that there was no housing bubble exactly as things spiraled out of control and the potential costs to taxpayers rose (Bernanke and his colleagues at the Fed; again, pick up Wessel’s book, p.93 is among the most damaging).
No one is suggesting that our illustrious financial firefighters deliberately triggered a crisis. But, for over two decades, they and their close mentors oversaw the operation and development of a banking and securities system with profound instability hard wired into its DNA. Don’t take my word for it; review this speech by Summers in April 2009, or – in the light of what we know now – look at his talk on crises to the American Economic Association in 2000.
Perhaps that was all a legitimate mistake on their parts and they have now learned the right lessons. But how then do you explain their amazing reluctance to reform the financial system today?
President Obama said on Tuesday that Ben Bernanke helped avert a second Great Depression. That is a considerable achievement, but why then are this administration and the Federal Reserve proposing only minor adjustments in oversight and governance for the financial system that ran amok – producing “financial innovation” that harms consumers and destabilizes everything?
It makes no sense at all. Unless, of course, they are not afraid of future financial fires – despite the enormous fiscal cost (likely 40% of GDP from this round alone), the unemployment (heading to and lingering at 10%, by the administration’s own revised estimates), and the millions of people hammered hard by lender abuse, house price collapse, and job losses.
You may not like the implications, but keep in mind this advice: “To ignore the problem or suggest that it does not exist will only increase the damage caused by the arson firefighters involved, as well as destroy the morale of the other firefighters in their departments” (Minnesota Fire Chief, March/April 1995 issue, quoted on p.1 of above cited report).
By Simon Johnson
A slightly edited version of this post originally appeared on NYT.com’s Economix, and from that version you can link directly to the referenced pages in David Wessel’s book.
This post is reproduced here with permission. If you would like to use the entire post, please contact the New York Times. The usual fair use rules apply to short quotations.
Monday, August 10, 2009
Krugman -- Boehner is Wrong
Reagan was wrong too. Sometimes Big Government saves us from a depression.
http://www.nytimes.com/2009/08/10/opinion/10krugman.html?_r=1
http://www.nytimes.com/2009/08/10/opinion/10krugman.html?_r=1
Friday, July 10, 2009
Friday, June 26, 2009
Monday, April 6, 2009
This Old Wasteful House
Good article and up-to-date on the benefits of the Stimulus Program
http://www.nytimes.com/2009/04/06/opinion/06moe.html
http://www.nytimes.com/2009/04/06/opinion/06moe.html
Sunday, March 29, 2009
Friday, March 6, 2009
Monday, March 2, 2009
Krugman -- Not Good, Great!
"Revenge of the Glut"
Op-Ed Columnist
Revenge of the Glut
comments
By Paul Krugman
Published: March 1, 2009
Remember the good old days, when we used to talk about the “subprime crisis” — and some even thought that this crisis could be “contained”? Oh, the nostalgia!
Skip to next paragraph
Fred R. Conrad/The New York Times
Paul Krugman
Go to Columnist Page » Blog: The Conscience of a Liberal
Related
Times Topics: Credit Crisis — The Essentials Economic Stimulus
Readers' Comments
Share your thoughts.
Post a Comment »
Today we know that subprime lending was only a small fraction of the problem. Even bad home loans in general were only part of what went wrong. We’re living in a world of troubled borrowers, ranging from shopping mall developers to European “miracle” economies. And new kinds of debt trouble just keep emerging.
How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago. At the time, Mr. Bernanke was trying to be reassuring. But what he said then nonetheless foreshadowed the bust to come.
The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia.
In the mid-1990s, he pointed out, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 (which seemed like a big deal at the time but looks trivial compared with what’s happening now), these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.
The result was a world awash in cheap money, looking for somewhere to go.
Most of that money went to the United States — hence our giant trade deficit, because a trade deficit is the flip side of capital inflows. But as Mr. Bernanke correctly pointed out, money surged into other nations as well. In particular, a number of smaller European economies experienced capital inflows that, while much smaller in dollar terms than the flows into the United States, were much larger compared with the size of their economies.
Still, much of the global saving glut did end up in America. Why?
Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.
And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article; “The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.
For a while, the inrush of capital created the illusion of wealth in these countries, just as it did for American homeowners: asset prices were rising, currencies were strong, and everything looked fine. But bubbles always burst sooner or later, and yesterday’s miracle economies have become today’s basket cases, nations whose assets have evaporated but whose debts remain all too real. And these debts are an especially heavy burden because most of the loans were denominated in other countries’ currencies.
Nor is the damage confined to the original borrowers. In America, the housing bubble mainly took place along the coasts, but when the bubble burst, demand for manufactured goods, especially cars, collapsed — and that has taken a terrible toll on the industrial heartland. Similarly, Europe’s bubbles were mainly around the continent’s periphery, yet industrial production in Germany — which never had a financial bubble but is Europe’s manufacturing core — is falling rapidly, thanks to a plunge in exports.
If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut.
And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.
One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.
So that’s how we got into this mess. And we’re still looking for the way out.
Next Article in Opinion (1 of 30) » A version of this article appeared in print on March 2, 2009, on page A23 of the New York edition.
Past Coverage
OFF THE CHARTS; All Around the World, Trade Is Shrinking (February 28, 2009)
A Crisis Is Separating Eastern Europe's Strong From Its Weak (February 24, 2009)
As It Falters, Eastern Europe Raises Risks (February 24, 2009)
With Economy Plunging, Latvia's Government Falls (February 21, 2009)
MOST POPULAR
E-Mailed
Blogged
Searched
Frank Rich: The Ecstasy and the Agony
Forced From Executive Pay to Hourly Wage
Heads Up: Outside Atlanta, a Utopia Rises
Maureen Dowd: Spock at the Bridge
Op-Ed Contributor: The Great Solvent North
Unboxed: How to Make Electronic Medical Records a Reality
Nicholas D. Kristof: Franklin Delano Obama
State of the Art: Geniuses at Play, on the Job
In Letter, Warren Buffett Concedes a Tough Year
About His Deposit ... Go to Complete List »
Propping Up a House of Cards
Forced Down the Job Ladder, From Executive Pay to Hourly Wage
Spock at the Bridge
The Ecstasy and the Agony
Ailing GOP Risks Losing a Generation
Message to Regulators: Bank Fix Needed Quickly
'Socialism!' Boo, Hiss, Repeat
Stranger Than Paradise
Suicide Squad
Keeping the Faith, Ignoring the History Go to Complete List »
obama
february 3, 2009
modern love
krugman
china
jindal
education
stimulus
Can you still get a mortgage?
Op-Ed Columnist
Revenge of the Glut
comments
By Paul Krugman
Published: March 1, 2009
Remember the good old days, when we used to talk about the “subprime crisis” — and some even thought that this crisis could be “contained”? Oh, the nostalgia!
Skip to next paragraph
Fred R. Conrad/The New York Times
Paul Krugman
Go to Columnist Page » Blog: The Conscience of a Liberal
Related
Times Topics: Credit Crisis — The Essentials Economic Stimulus
Readers' Comments
Share your thoughts.
Post a Comment »
Today we know that subprime lending was only a small fraction of the problem. Even bad home loans in general were only part of what went wrong. We’re living in a world of troubled borrowers, ranging from shopping mall developers to European “miracle” economies. And new kinds of debt trouble just keep emerging.
How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago. At the time, Mr. Bernanke was trying to be reassuring. But what he said then nonetheless foreshadowed the bust to come.
The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia.
In the mid-1990s, he pointed out, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 (which seemed like a big deal at the time but looks trivial compared with what’s happening now), these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.
The result was a world awash in cheap money, looking for somewhere to go.
Most of that money went to the United States — hence our giant trade deficit, because a trade deficit is the flip side of capital inflows. But as Mr. Bernanke correctly pointed out, money surged into other nations as well. In particular, a number of smaller European economies experienced capital inflows that, while much smaller in dollar terms than the flows into the United States, were much larger compared with the size of their economies.
Still, much of the global saving glut did end up in America. Why?
Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.
And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article; “The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.
For a while, the inrush of capital created the illusion of wealth in these countries, just as it did for American homeowners: asset prices were rising, currencies were strong, and everything looked fine. But bubbles always burst sooner or later, and yesterday’s miracle economies have become today’s basket cases, nations whose assets have evaporated but whose debts remain all too real. And these debts are an especially heavy burden because most of the loans were denominated in other countries’ currencies.
Nor is the damage confined to the original borrowers. In America, the housing bubble mainly took place along the coasts, but when the bubble burst, demand for manufactured goods, especially cars, collapsed — and that has taken a terrible toll on the industrial heartland. Similarly, Europe’s bubbles were mainly around the continent’s periphery, yet industrial production in Germany — which never had a financial bubble but is Europe’s manufacturing core — is falling rapidly, thanks to a plunge in exports.
If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut.
And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.
One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.
So that’s how we got into this mess. And we’re still looking for the way out.
Next Article in Opinion (1 of 30) » A version of this article appeared in print on March 2, 2009, on page A23 of the New York edition.
Past Coverage
OFF THE CHARTS; All Around the World, Trade Is Shrinking (February 28, 2009)
A Crisis Is Separating Eastern Europe's Strong From Its Weak (February 24, 2009)
As It Falters, Eastern Europe Raises Risks (February 24, 2009)
With Economy Plunging, Latvia's Government Falls (February 21, 2009)
MOST POPULAR
E-Mailed
Blogged
Searched
Frank Rich: The Ecstasy and the Agony
Forced From Executive Pay to Hourly Wage
Heads Up: Outside Atlanta, a Utopia Rises
Maureen Dowd: Spock at the Bridge
Op-Ed Contributor: The Great Solvent North
Unboxed: How to Make Electronic Medical Records a Reality
Nicholas D. Kristof: Franklin Delano Obama
State of the Art: Geniuses at Play, on the Job
In Letter, Warren Buffett Concedes a Tough Year
About His Deposit ... Go to Complete List »
Propping Up a House of Cards
Forced Down the Job Ladder, From Executive Pay to Hourly Wage
Spock at the Bridge
The Ecstasy and the Agony
Ailing GOP Risks Losing a Generation
Message to Regulators: Bank Fix Needed Quickly
'Socialism!' Boo, Hiss, Repeat
Stranger Than Paradise
Suicide Squad
Keeping the Faith, Ignoring the History Go to Complete List »
obama
february 3, 2009
modern love
krugman
china
jindal
education
stimulus
Can you still get a mortgage?
Friday, February 27, 2009
Friday, February 20, 2009
Wednesday, February 18, 2009
Tuesday, February 10, 2009
From Manila
Playing duplicate bridge at the Polo Club yesterday, we were inquiring about the strength of Philippine Bank. It turns out that banks here do not loan money for the purchase of residential real estate. Such real estate is paid 100% in cash. Basically most individuals do not own real estate. They rent. It seems to me that that was the way in England, or at least London, too. A few rich people own the real estate.
However, there may be other problems with Philippine Bank, hinted at but not discussed. Transparency?
However, there may be other problems with Philippine Bank, hinted at but not discussed. Transparency?
Subscribe to:
Posts (Atom)