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Is The Economy Going "China Syndrome?"
The China Syndrome is a hypothesis of a possible extreme result of a nuclear meltdown in which molten reactor core products breach the barriers below them and flow downwards through the floor of the containment building. The origin of the phrase is the concept that molten material from an American reactor may melt through the crust of the Earth and reach China. Wikipedia
You kinda get the "China Syndrome" blues reading Paul Krugman's column:
The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren't lending; businesses and consumers aren't spending. Let's not mince words: This looks an awful lot like the beginning of a second Great Depression.
To date the stimulus isn't working:
It turns out, however, that preventing depressions isn't that easy after all. Under Mr. Bernanke's leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.
(If the banks aren't lending just where are those billions going, the Madoff defense fund?)
And there are major obstacles:
...with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation -- which is pretty rich considering their party's behavior over the past eight years.More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren't going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.
The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs -- a burden of proof never imposed on proposals for tax cuts.
When Paul Krugman is worried, I'm scared to death:
Here's my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it's only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy -- well, you can see where this is going.
The bottom line to all this is "a falling tide lowers all boats." There will be no winners if the U.S. economy goes down. Most of all Republican politicians.
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All I can really say at this point is:
JESUS CHRIST, I HOPE NOT.
January 5, 2009 3:42 PM | Reply | Permalink
Time to drain your 401(k) and go on vacation. While you still have it.
That's what my parents did. Going on a month long cruise around the tip of South America. They're going to go see penguins. Penguins!
...down in flames.
January 5, 2009 5:30 PM | Reply | Permalink
See the penguins while you still can!
http://www.brazzilmag.com/content/view/9734/54/
I don't know how to do that fancy highlighting ... yet!
January 6, 2009 12:53 AM | Reply | Permalink
This coming depression is the direct result of the bogus economic concept accepted in America that debt creates wealth.
America is experiencing the largest ponzi scheme in history - perpetrated by the Federal Government.
By using deficit spending, borrowing to be able to spend more than is available through taxation, the USA is fast heading toward bankruptcy.
Bankruptcy is inevitable as more and more tax dollars are needed to pay the interest on the National Debt leaving less and less tax dollars available for other government expenses, in turn, requiring additional borrowing.
The current government policies will only serve to make matters worse since when an individual, a corporation, or a government continues to go deeper into debt, the solution is not to spend more and reduce income, it is to spend less and increase income.
For a government, this means the correction needs to be raising taxes and decreasing spending, not creating additional debt by borrowing more and more money.
Both the "Bailouts' and the "Economic Stimulus Packages" can only serve to make the economic problems worse by increasing debt and therefore increasing the required interest payments to service that debt.
The ponzi part of this scheme is that additional borrowing (new investors) will be necessary to pay off current borrowing (present investors).
It is a simple geometric progression to see that deficit spending by any individual, corporation, or government must eventually bring on the disaster the USA is experiencing.
January 6, 2009 10:34 AM | Reply | Permalink
"When there is blood on the streets, buy property." - attributed to Rothschild in the movie Inside Man.
Cash will be king until inflation wipes out cash and a new equilibrium is reached. All that cash the Fed is [insanely] injecting is very likely to come back to haunt us. The winners, in this sense, will be those poised to catch the low tide. Jobs and much investment income will be the losers macro-wise, and individuals close to the edge will be the losers human-wise.
What we have here is a highly over-leveraged economy going into real economic correction. There's just no getting around reality except to tighten belts or live in a fantasy. The problem with belt-tightening is that it can over-correct and even if done right it does tend to decrease economic activity. The problems with fantasy are too difficult to deal with here.
It's unlikely that there will be significant tax revenues from the capital gains tax, so adding further tax cuts on income will create a huge increase to the new year's likely mammoth deficit.
January 5, 2009 3:53 PM | Reply | Permalink
I believe there is a tipping point that we haven't reached it yet.
Did you see Obama's presser? He sure has the confidence, moxie, and smarts to turn this rusty old old ship around. But to work is has to be bipartisan, not a political football. It would be a big mistake for the Republicans to make it one.
And, he has to keep the public on board. Ever turn the wheel of a big boat, it takes a while to react.
We elected a President who won on hope, here's hoping...
January 5, 2009 4:16 PM | Reply | Permalink
Presser - not yet.
Can you talk about the tipping point you see?
Yes, the so-called stimulus might not show effects for 12-24 months. I suppose the best that individuals can do is to remain vigilant and expressive.
January 5, 2009 8:15 PM | Reply | Permalink
"Let's not mince words: This looks an awful lot like the beginning of a second Great Depression."
The big commenters are at last slipping up closer & closer to saying in public what they actually KNOW - that this ship is holed below the waterline, and the best we can hope for is to "slow the descent." But when you're talking about spending $700-$800 billion, and getting that approved within months, and that's still considered too CAUTIOUS & too LATE, what PK's really saying is ---- "Holy shit, this thing is taking on water like I can't believe." And when the proposed package & process - thought up & put together by the best economic geniuses we have - is only gonna get us THAT far......?
Apparently we've been wasting time being hopeful when we should be making active plans for what next and what ELSE to do, beyond the Stimulus Package & the Bailout.
Arghhhhhh.
January 5, 2009 4:12 PM | Reply | Permalink
I see the image of image of trying to bail .... a huge ship taking on water.
We once went "bailing" (in a couple's antiquated sail boat). That was bad enough!
January 5, 2009 4:37 PM | Reply | Permalink
And the options are?...
January 5, 2009 5:10 PM | Reply | Permalink
Oh.... sorry... obviously we have to either bail water or bail out of the boat. I'd rather bail water.
I was just referring to the huge, huge SCARY task.
Peace be with you, steve. Good blog. I'm scared too.
Great image of a meltdown to China. I'm just gonna be hopeful, only because the whole world is in this together and at least we have a sane president.
January 5, 2009 5:19 PM | Reply | Permalink
Quinn, I think the opposite metaphor is apt. It's not holed and taking on water, it's becalmed in shallow water and about to become grounded as the tide goes out "lowering all boats". There may be coral reefs to the left and mudflats to the right, or even already directly beneath.
January 5, 2009 8:31 PM | Reply | Permalink
I tend to agree with Atrios. Banks aren't lending because:
#1 lax lending standards are what led to this mess in the first place and
#2 when they look at the balance sheets and prospects of their customers the future looks bleak. And for the biggest banks those customers look like future takeover fodder they can cash in on. That's what Citigroup was doing in October in the days after their first bailout, looking at failing banks they could scarf up for pennies on the dollar. They almost killed themselves as their share price fell to the point where many funds would have to unload their stock Vulture capitalism lives, only the strong survive, blah, blah, blah. I hope there's a special place in hell for such people.
But it's not all terrible news. Ford has increased it's market share 3 months in a row. Chrysler sold more cars in December than it did in November. Yeah that may be like Ford finding a life vest and Chrysler an oar on deck just before the Titanic's stern goes straight up in the air but it's better than nothing.
January 6, 2009 12:51 AM | Reply | Permalink
If we do go American, and buy our own cars, it will make a difference in Detroit and elsewhere in the US. My latest purchase played it both ways. I bought a Pontiac Vibe, which is the Toyota Matrix wrapped in an American flag.
January 6, 2009 12:58 AM | Reply | Permalink
The auto companies have flooded the market with cars to the point that people just can't afford to buy more cars, SUV's or trucks. Just look at all the vehicles on used car lots and in new car showrooms - most of which are not being sold.
It is a case of production far exceeding any possible demand.
The solution of the US government bailout is to help the auto companies continue to create more cars that nobody will be buying.
January 6, 2009 10:42 AM | Reply | Permalink
Yes, it also seems that people are holding onto their cars longer now than they did 20 years ago. NYT article with other data and charts (might require login). Change in how long people keep their old cars has an impact on new car sales.
January 6, 2009 3:47 PM | Reply | Permalink
Cars last longer than they used to. Increased competition and better manufacturing practices will do that. Higher costs for new cars, the lending crunch and the credit merry-go-round that has been skewed even more against consumers thanks to that awful bankruptcy bill has taken a whole lot of people out of the new car market too.
January 8, 2009 2:03 PM | Reply | Permalink