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January 4, 2010
Paul Krugman strikes a discordant note about US recovery in his Nobel lecture, on currency crises. He argues that the US is not likely to see a phoenix-like recovery from the current slump caused by the global financial crisis, that in turn, caused the world economy to substantially contract.
This currency crisis has left the bubble economies, such as the US and the UK, in a vulnerable position in a world where China's heavily managed exchange rate regime---its mercantilism---is a legitimate concern of its trading partners.
Since US households are broken on the wheel of debt it is unlikely that there will be a spending surge based on buy-now-save-never habits of yore. A housing boom is unlikely given the vacant houses and apartments left behind by the previous boom and massive unemployment.
At the end of his lecture Krugman asks: 'how long should the recovery in the US be expected to take?' His answer:
Well, there aren’t many useful historical models. But the example that comes closest to the situation facing the United States today is that of Japan after its late-80s bubble burst, leaving serious debt problems behind. And a maximum-likelihood estimate of how long it will take to recover, based on the Japanese example, is … forever. OK, strictly speaking it’s 18 years, since that’s how long it has been since the Japanese bubble burst, and Japan has never really escaped from its deflationary trap.
He adds that despite the praise being handed out to those who helped the US avoid the worst, the US is not handling the crisis well: fiscal stimulus has been inadequate, financial support has contained the damage but not restored a healthy banking system. All the indications are that the US is going to have seriously depressed output for years to come.
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Almost missed this.
Am actually smirking, without mirth. Know I shouldn't be, but there you are!
Am actually actualising my response to this thru the lens of the "medicalization" thread just out.
You know,
all that stuff about sadness and being abnormal because you are appalled at the latest string of savage unnecessary wars, or whatever.
Am just contemplating a comparison between me and America- both burnt our bridges and are becoming/e clapped out.
Also remembering a good old Jack Lemmon beltway movie from the "future shock" era, called "Harry and the Tiger", which was a little like the classic Rod Steiger "Pawn broker" movie of a slightly earlier era.