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View Diary: Krugman on Geithner, "He was right, I was wrong" (67 comments)

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  •  Sounds like you have some (18+ / 0-)

    pretty solid evidence that Geithner was a puppet of his Wall Street Owners and has no clue as to what happened in 2008 or is happening now. Better get Paul Krugman on the line, stat, to let him know!!

    •  Meanwhile, Balance Sheet Recession is where (0+ / 0-)

      Geitner failed. That's the debt overhand problem identified by Richard Koo.

      Clearly, restoring confidence in the financial sector, while it may have been necessary to avoid a complete economic meltdown, wasn’t enough to jump-start a strong recovery. Why not?

      The best working hypothesis seems to be that the financial crisis was only one manifestation of a broader problem of excessive debt—that it was a so-called “balance sheet recession.” Curiously, while Geithner repeatedly refers to the classic Bagehot analysis of financial panic, he never mentions the almost equally classic analysis of “debt deflation” by the American economist Irving Fisher, who laid out the basics of the balance sheet view back in 1933. Yet a Fisher-type interpretation of our economic troubles has seemed increasingly relevant as financial markets flourish but the real economy remains stubbornly weak.

      The logic of a balance sheet recession is straightforward. Imagine that for whatever reason people have grown careless about both borrowing and lending, so that many families and/or firms have taken on high levels of debt. And suppose that at some point people more or less suddenly realize that these high debt levels are risky. At that point debtors will face strong pressures from their creditors to “deleverage,” slashing their spending in an effort to pay down debt. But when many people slash spending at the same time, the result will be a depressed economy. This can turn into a self-reinforcing spiral, as falling incomes make debt seem even less supportable, leading to deeper cuts; but in any case, the overhang of debt can keep the economy depressed for a long time.

      That's Krugman.

      Research Richard Koo for what he's talking about and the true economic analysis underlying these issues.

      "Stealing kids' lunch money makes them strong and independent." -- after Paul "False Prophet" Ryan

      by waterstreet2013 on Fri Jun 20, 2014 at 09:51:01 AM PDT

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      •  yes,, and this part is vital (1+ / 0-)
        Recommended by:
        waterstreet2013
        The logic of a balance sheet recession is straightforward. Imagine that for whatever reason people have grown careless about both borrowing and lending, so that many families and/or firms have taken on high levels of debt.
        The most careless borrowers and creditors are held accountable as it should be.

        "The way to see by faith is to shut the eye of reason." - Thomas Paine

        by shrike on Fri Jun 20, 2014 at 10:21:07 AM PDT

        [ Parent ]

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