“I’m free, free fallin”
“Yeah I’m free, free fallin” – Tom Petty ©EMI April Music, Inc.
“The fourth quarter of 2008 is experiencing an economic free fall,” pronounced Richard Dekaser, Head Economist of National City Corp, Cleveland, adding “we haven’t this kind of collapse in a very long time.” (Yahoo News, reported by Steven C. Johnson). And we haven’t even heard the dreaded government report on jobs lost in November which will come out this Friday, the number of which some expect to clear 300,000 and then some, the worst since right after 9/11.
More gloom and doom? Maybe not so much. More like current reality, I am afraid. Paul Krugman, Professor of Economics and International Affairs at Princeton University and NYT columnist (his many columns are archived and freely accessed on the NYT website), shortly on his way to Stockholm to accept his 2008 Nobel Prize in Economics on December 10, has just published a very understandable, re-written and much expanded edition of his classic study: “The Return of Depression Economics and the Crisis of 2008,” (Norton – November 24, 2008). There, Krugman quotes a number of economic gurus and distinguished luminaries, including Ben Bernanke, himself a former Princeton Professor, as pronouncing and believing, as recently as 2004, that the “central problem of depression –prevention” has now been “solved for all practical purposes.” Indeed, just a few short years ago, when the economies of the US and many other countries were riding so high on the hog, it seems that nearly everybody signed on to the myth that “nothing like the Great Depression can ever happen again,” according to Professor Krugman.
We now are living through the consequences of yet another example of what happens when everybody marches together in the parade, but the parade is going in the wrong direction; actually, going right off the edge of a cliff. Well, not everybody. There were ample warnings from people like Warren Buffett and George Soros and others, but, when the money is flowing like Niagara Falls, great wealth and being right seem to go hand in hand. And anyway, who wants to be the party-pooper and end all that fun?
As Professor Krugman describes, there are many different and varied historical events and forces that have combined to produce this Perfect Storm where watching Talking Heads financial TV commentators has become an exercise in pure terror rivaling that of Freddy Kruger or any other movie monsters. It seems like ‘nothing is sacred’ right now because, well, nothing IS sacred. Congress labors over the Big Three Automakers’ latest plea for some $34 or 35 Billion (the number keeps going up from the original $25 Billion requested when they flew in on private jets a couple of weeks ago), when all of GM could be purchased – all of its outstanding stock, that is – for like $3 Billion! ‘What’s good for General Bullmoose is good for the USA,’ the mantra when I was growing up in the 50’s and 60’s, is a bad joke right now.
And, we are truly between a rock and a hard place on this one because nobody who was elected to this Congress, either recently or a long time ago, wants to be the one to pull the plug on a million or more American jobs, the US auto industry and all the other businesses which depend for their existence on it. That is even though we have already seen what happens when $700 or 750 Billion is handed over to bankers without enough strings attached, ostensibly to get them to loosen up their lending purse strings, and then they promptly stop lending. It might help if members of Congress actually took the time to read the bills they passed, before they passed them! If nothing else, they are a wonderful sleeping medication.
President-elect Obama said recently that we seem to have offered help to all the Big Boys now, but that we have ignored the plight of the homeowner about to lose his or her home to foreclosure and he is right; we have so far. It is time to give Bankruptcy Judges back the power to re-write home mortgages so that homeowners can stay in their homes and keep making payments. This is because keeping loans “performing” at some level is way, way better than letting them default and then spending something like $50,000 or $60,000 per house in expenses to take them back via a foreclosure that nobody really wants and where all the bankers really accomplish is to share the pain, fatten up their list of unwanted properties (“REO’s” they call them) and continue to depress the real estate market even further.
It’s time to re-think old notions. If we were so sure that the US and the world was absolutely “Depression-Proof” as recently as four years ago, then we have to admit that all our knowledge and experience, though extremely broad for some of us, is still not enough to have all the answers in this rapidly changing, free fallin’ world caught in the economic Perfect Storm of 2008.