WHEN IGNORANCE ISN'T BLISS!

"The American public believes that we have
already spent far too much money on bailing
out the banks. But the economic fact is that
we have not spent enough." So wrote Fa-
reed Zakaria in the Feb. 2 Newsweek. He
goes on to say that "the American financial
system is effectively broken. . . .we have not
turned the corner. In fact, we can't even see
the corner right now. . . the bailout has not
solved the problem; banks are still buried un-
der mountains of bad assets."

Paul Krugman agrees with Fareed's gloomy
assessment, and worries (in NYT) that the
slide is picking up momentum, and the longer
we dilly-dally before taking decisive action,
the harder it will be to stop. He writes: "we're
in a situation not seen since the 1930s: the in-
terest rates the Fed controls are already ef-
fectively at zero. . . That's why we're talking
about a large-scale fiscal stimulus: it's what's
left in the policy arsenal now that the Fed has
shot its bolt. Anyone who cites old arguments
against fiscal stimulus without mentioning that
either doesn't know much about the subject --
and therefore has no business weighing in on
the debate -- or is deliberately obtuse."

Alan Greenspan likened our economic situation
to a Tsunami building up, and said we haven't
felt its full force yet. Nouriel Roubini, an econ.
professor at NYU is becoming famous for his
early predictions of the current crisis, beginning
four years ago. He has written in the current
Foreign Policy: "The global financial pandemic
that I and others had warned about is now upon
us. But we are still only in the early stages of
this crisis. My predictions for the coming year,
unfortunately, are even more dire: The bubbles,
and there are many, have only begun to burst. . .
the macroeconomic news in the United States
and around the world will be much worse than
most expect. Corporate earnings reports will
shock any equity analysts who are still deluding
themselves that the economic contraction will
be mild and short. . . certainly the U. S. will ex-
perience its worst recession in decades. . . .
lasting about 24 months. . . It could end up be-
ing even longer, a multi year stagnation, like the
one Japan suffered in the 1990s. . . As the U. S.
economy shrinks, the entire global economy will
go into recession. In Europe, Canada, Japan, and
the other advanced economies, it will be severe.

Dean Baker, also writing in the current Foreign
Policy, says: "once the fin. situation begins to re-
turn to normal (which might not be in 2009), in-
vestors will be unhappy with the extremely low
returns available from dollar assets. Their exo-
dus will cause the dollar to resume the fall it be-
gan in 2002, but this time, its decline might be
far more rapid. . . For Americans, the effect of
a sharp decline in the dollar will be considerably
higher import prices and a reduced standard of
living. If the U. S. Federal Reserve becomes
concerned about the inflation resulting from
higher import prices, it might raise interest rates,
which could lead to another severe hit to the
economy. As for 2009, the ongoing collapse of
the housing bubble, the coming collapse of the
commercial real estate bubble, and the ensuing
wave of bad debt will all be major sources of drag
on the U. S. economy -- even if the dollar bust
happens later.

President Obama seems fully aware of the dire
outlook for this economy. He is seeking to in-
still some urgency into the deliberations of
Congress. But many, particularly in the Senate,
do not seem to "get it." They are determined
to go slowly and cautiously at a time that our
economy is on a raft, drifting toward Niagara
Falls! Let's hope they find the oars, or at least
an anchor, before it's too late.

jgoodwin004@centurytel.net