TMFDeej (99.46)

Green Shoots and Glimmers, not so fast

April 17, 2009 – Comments (4)

Let be begin by saying that I absolutely can't stand Paul Krugman.  If he's not the most liberal person on the planet, he's up there at the top of the list.  And this is coming from someone who's fairly middle of the road...not some nutty, right wing, neocon.  Even though I really don't like Krugman, I often read his work because people can sometimes learn from reading things that wre written by someone who has a different perspective than their own.

That's why I clicked on Krugman's recent New York Times OpEd piece titled Green Shoots and Glimmers.  Krugman gets one point in my book right off the bad for seemingly mocking the use of the phrase "green shoots" which annoys me to no end. In the piece Krugman basically states that despite the recent optimism out there we are far from being out of the woods on the current recession.  He lists several reasons for this line of thought, including:

1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.

The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.

2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny...

3. There may be other shoes yet to drop.  Such as commercial real estate, rising credit card losses, the complete implosion of Japan or Eastern Europe.

4. Even when it’s over, it won’t be over.  Why? “V-shaped” recoveries, in which employment comes roaring back, take place only when there’s a lot of pent-up demand. In 1982, for example, housing was crushed by high interest rates, so when the Fed eased up, home sales surged. That’s not what’s going on this time: today, the economy is depressed, loosely speaking, because we ran up too much debt and built too many shopping malls, and nobody is in the mood for a new burst of spending...

Employment will eventually recover — it always does. But it probably won’t happen fast.

Now Krugman's and my solution to this recession almost certainly would be different.  As I said he's waayyyyy to liberal for my taste.  Still he makes some excellent points in his piece about why the recent optimism in the markets may be a little premature.  I encourage everyone, even those who don't like Krugman to read his latest article.

Deej