On the exchange between Robert Naiman and Patrick Bond -- In his latest NYT column, Krugman compares the current situation to 1929-1930. I guess there are parallels.
http://www.nytimes.com/2008/03/21/opinion/21krugman.html However, three strong reasons most economists would list to show why things are not likely to go that far in, say, length and unemployment rates, are: (1) regular bank deposits (as opposed to money in unregulated funds) are federally insured; (2) one fifth of GDP is (potentially counter-cyclical) government spending, compared to one-digit percentages in the 1920s; and (3) today's monetary policy may lack traction, but it's not likely to be as pro-cyclical as it was in the 1930s (as documented by Friedman & Schwartz and, more recently, Meltzer). I heard these and other arguments yesterday on Bloomberg radio or NPR... can't remember, had/have a very bad cold. With regards to (1), one may argue that the balance sheets of banks are all intertwined with those of the hedge funds, so regular banks -- even those who steered clear of subprime junk -- are likely to get hit. True, still, the bulk of the regular deposits are insured. Deposit insurance does limit the damage. And with regards to (2) and (3), it's hard to imagine the U.S. society melting in the near future to such point as to evaporate the overall creditworthiness of the state, which is ultimately based on the still large amount of productive wealth (physical and human) the country has. What Bernanke is doing now is probably the best that can be done within the framework he's inherited. An Obama administration could expand that framework significantly. Not saying that it would. Global capitalist leadership may well continue to fail. I wish I could say that such failure opens opportunities for an alternative, but that's not necessarily so. The alternative requires a lot of basic educational and organizational work that is not there yet. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
