Sounds like printing more money - no surprise there.

Transferring private debt to public debt punishes the frugal and allows bad behavior on a monumental scale to continue by the least responsible members of society - the govt.

Papering over the problems solves nothing in the long run - and the long run keeps getting shorter.

The auction today will reveal how much our paper is sought. Are there enough termites left in the world?

Messy business -- looking through brown squirts to find green shoots, eh?

If the goal is to grab power, then they are succeeding - which makes them at least very clever idiots.

If the govt were not suspending the rule of law and taking over the financial markets and dictating terms to businesses, you would be quite right.

Unfortunately the govt is becoming the market and most things being determined by political decisions.

Any bets on the Supreme Court vis-a-vis Chrysler?

I hope so as well!

Economics is way behind even meteorology in its ability to predict specific events...especially when it comes to times and dates. If it has any value, other than keeping a few professors and pundits employed, it is in examining data and revealing trends. That's why it so frustrating to me to here people like Krugman criticized for being "4 years early". If Krugman or Roubini or Schiller etc. predict times and dates then they deserve to be ridiculed...whether they turn out to be right or not. Economics is not a crystal ball but it can be a pretty valuable table of contents to our future. Rather than question their 'predictions', question their facts and most of all keep focused on the larger issue: what's been fixed?

One of the reasons I go to Minyanville and other finance and economics sites is to find persuasive arguments which address our current economic situation. After reading several recent books, listening to numerous pundits and reading thousands of blog entries I can honestly say I haven't found a single believable argument as to why we aren't in deep doo doo. That said, I also haven't found any analysis that would lead me to sell everything I own and leave the country...yet.

My point is both practical and moral. This country faces severe structural imbalances that if allowed to go unaddressed WILL result in extreme hardship if not massive human suffering...if not for us then for future generations. This is not a prediction its a fact.

I have challenged anyone and everyone to debate this economic crises with regard to debt, oil, healthcare, the housing glut and the effects of the baby boom demographic bubble. The BEST response I have heard from ANYONE is that well, 'we've always found a way before'. Or, even better, 'people see what they want to see'. Well, my eyes and mind are open...let me see an intellectually honest argument why 'this too shall pass'...without extreme consequences.

I read recently that 24,000 people die of malnutrition every day. As this global economic crisis worsens this number will no doubt rise dramatically. For these people this IS going to be "an end to all consumption".

Uhuh... especially after all their effort that was expended in creating it.

The pioint is opening in Washington! Anybody notice how, unlike the rest of the country, Wasington is in a boom. Recall when Obama spoke tgo Congress some monthe ago? I've never seen so many happy, excited people. They know that as the rest of the country suffers, all attention will focus on Washington. The lobbyists, legislators and bureaucrats of Washington will have good times for years to come while the rest of the country is sucked dry. A business in Washington? Good move.

Perhaps if Paul Krugman was "only about 4 years early" in calling the stock market bubble collapse he is also about 4 years too early in calling the end of the recession. Now there's a sobering thought for all minyans! The "green shoots" crowd will be rustling around in the weeds for some time to come.

I agree with Krugman that the Japanese experience might come to be viewed as somewhat benign compared to the upcoming decade.

Does anyone else get a sinking feeling in their stomach every time the government announces a new whatever. Do you feel like we don't need government sponsored health care, new wars, more welfare, more stimulus, bailed out car makers, greater deficits, more world power,etc. That what we need is a financially responsible government. That until they get their house in order they should not even consider new spending programs. That they are self stimulating. That our form of Government has been reduced to the rule by idiots of idiots. I do.

great article as usual (does that make it regular or just ok now? ;-)

anyway, your story about the picking of which part of krugman's quote to use, usually to bolster as you say, whatever one's bent is already anyway, is, also as you say, not something we should necessarily be faulted for...

but that's more true (i think) for regular private conversation, or up-front partisan public discourse -

not, i think, for the financial media; or at least those outlets who portray themselves as (at least) (relatively) unbiased...

intentionally misleading out-takes of supposed experts' opinions on matters of importance would be, from a salesman, doctor, etc...a lie -

now blog-reply stuff like this.... ;-)

no bets ;-) but sure hope they hear the case -

if the whole question of the rule of law can be brought out in the open (and i think it should) - that'd be a huge plus for us as a people...

and to tell the truth, at this point, i'm not wanting any paraticular decision (let's hear what the issues are first, clearly, where we can understand them) -

...as much as really wanting proof that constituional issues of importance to the american public, whose govt this is, are heard debated and resolved...

(even if ony for now, i know future supreme courts could maybe should revisit any issue newly of concern to the american public at that time)

whatever supposed delays may occur if this issue is heard and debated, pales to the right to have lawful concerns lawfully resolved....

Compared to gold, Krugman was right. The stocks were in a bubble in real value terms (at least compared to gold) in 2003, and haven't recovered.

Having stocks rise just because you're devaluing the dollar doesn't say much about the overall health of the economy, or the "unbubbleness" of the stock market.

They did say that no good crisis should be wasted.

it will be interesting to see what justice ginsburg decides and i think we will get some sort of ruling before the end of the week.

Anyone care to explain how the savings rate is calculated? If previously I was putting $100/mo. into an equity mutual fund and since last September I changed that to putting it in a savings account instead; does that now show up in the savings rate? If yes, how much of the increase in the country's savings rate we keep hearing about is simply this type of behavior?.

"open a salad and frozen yogurt restaurant in Washington, potential investors and landlords laughed at them."

I would laugh too, people will be eating more real food as this drags on. But I can understand how it might be successful in Georgetown and similar places. Salad and yogurt, didn't we already do that once before?

interesting for sure!

Pepe,

It really doesn't matter when the official, technical end of the recession is. It will be followed by the prolonged "muddle through" or your "stealth depression"
I think Lavery is predicting a GDP contraction of (2-4)% this quarter. Toddos "W" may still come true
No one will be making any money for a long, long time.
It is time people start to realize this.

The predictions for 2010 GDP remind me of this conversation:

Dean Vernon Wormer: Zero point two... Fat, drunk and stupid is no way to go through life, son. Mr. Hoover, president of Delta house? One point six; four C's and an F. A fine example you set! Daniel Simpson Day... HAS no grade point average. All courses incomplete. Mr. Blu - MR. BLUTARSKY... ZERO POINT ZERO.

Great thought provoking article as always Kevin.
The thing that caught my eye was the line "
The minute you enter that corporate world, you're not leaving. The minute you get your 401(k) and health insurance, it's over.""
If we are relying on entrepreneurs to energize the economy, and this (401(k) and health insurance) is what they are using as motivation to avoid the loss of control of their own conscious efforts by organizational imperatives then I wonder what this crop of entreprenuers powers of analysis or critical reasoning abilities actually are. . . Just wait until the spouse and first child show up.

Hard to make a bet here, but I think Obama and team would like to play by South American rules in this game; and they are in a position tol make sure future new supreme court justices agree.

I liken it a bit to Katrina...

as the hurricane (massive debt default) approached, gaining in strength (gov't bailouts of banks, insurance & car cos, stimulus packages, etc.), folks were reassured that the levees (economy) were strong enough to hold up and prevent disaster...

then, as the hurricane made landfall, new orleans was only side-swiped by a downgraded storm, (the government initiatives seemed to have accomplished recapitalization of the banks, mortgage refinancing, etc., aka the green shoots) .

the levees (economy) had held and people were breathing a sigh of relief for a day...until water (declining dollar, increased taxes, higher oil prices, & interest costs) from the storm surge (spike in long term rates) breached one of the levees (economy) causing a massive rupture (rising unemployment) leaving people drowning (in debt) in their own homes, with no hope of being able to escape (repay) the flood (debt).

chaos & panic ensues as people desperately seek refuge in the superdome (stimulative infrastructure projects) & a belated massive rescue effort (global trade & military wars?) is launched after widespread criticism about the government's complacent, feeble & ineffective initial response (wrong policy initiatives) to the underestimated emergency (keeping the bankers happy)...

What types of savings makes up that 5% figure cited in the article? Does that include 401k and IRA contributions? College Savings Accounts? Brokerage accounts?

Or, is it solely cash savings-type accounts?

Over the past number of years I've heard this attitude from 20 somethings about career jobs and marriage and family.

My impression is that they are referring to the broken promise of these societal institutions.

The kid out of college opening a Yogurt stand might have a 50% chance at failure, but it will be HIS failure. Once you get a salary and cubicle and 401K and health insurance your life adjusts to fit the circumstances, and you are trapped. Your escape will be that much more painful. Besides, corporations have done away with loyalty to employees, so employees have doen away with loyalty to the company. At any moment they may fire you, claim bankruptcy, rob your pension, or be bought out in a leveraged takeover and you are "downsized" and you had no control over it.

I've heard the same discussion about marriage; have heard groups of young Men saying "no way" and recanting histories of their Fathers, Brothers, Uncles, Friends winding up in a one bedroom apartment paying $1,500 a month to not see their own children. Marriage is just as frightening as a corporate cubicle job because society rewards Women leaving the marriage. I am speaking in generalities, but $1,500 a month and the chance to date again and relive your teen years without any social stigma (cheerleading even) is definitely NOT an incentive to work things out (can you say "Cougar"?). It's getting closer to equality as time goes on, but the incentive to keep things together for both genders is dissolving financially and socially - much like the headhunter job shuffling merger mania that began in businesses and corporations in the mid-70's.

If you have to stimulate your stimulus there is a lack of passion (truth) or an underlying hydraulic failure. Thinking, talking, and acting positive can help you get up the hill, but it is false hope and a charade if your legs are broken and you tell yourself the circling vultures are bluebirds.

Not just Washington. I live in a college town. Things are great here too. Resturants are full, shops are open late, college kids spending money (credit cards still working, I guess). As long as the government money is a-flowin' things will be great. Looks like the rest of the world doesn't care if they get paid back either, they keep buying our dollars.

How can the government be more rsponsible than the people that vote for it? Most people I know are never really expecting to pay off their debts before they die. The more debt you die with the smarter you are, right?

Americans got exactly the government they voted for. A government of children.

I have to defer to the great Yogi Berra--It aint over til its over.Good luck out there,JT

I think the reasoning in point #3 is a bit misleading. If I have a disposable (i.e., after-tax) income of $100k and owe $130k, say on a 30-year fixed-rate mortgage at 5%, I can certainly make my mortgage payments (somewhere around $5k per year) and put another $5k per year in a savings account--no prob. If that 130k is the balance on my high-interest credit-card, on the other hand, then I'm in trouble. If debt service costs were 130% of disposable income, or if all that debt matured after 1 year, then you could do the calculation you're suggesting.

I think a debt/income ration of 130% probably is unsustainably high and is an indicator of continued trouble ahead, but it's not something you can use for any kind of straightforward calculation about people's annual debt service cost.

I also think point #3 is lacking a lot of disclosure. I would like to see Kevin's backup for his claim. James brings up a good point between the difference of long term debt to short term debt. When I bought my first house in late 70's I was certainly over 300% debt/income ratio. But the increase in house prices, salaries, and assets over the next 10 years allowed the debt/income ratio to be drastically reduced. My point is that there are alot of assumptions about the future in Kevin's statement that 130% ratio is unsustainable, and I would like the backup for his claim with some numbers and math.

Unfortunately, true.