I am a big Paul Krugman fan, in his more serious moments, and as with this morning's blog entry in his not so serious moments. I take the liberty of quoting it in full, because it is short, and there are no excerpts that would do it justice.
The only thing we have to fear is fear itself. Fear and negative equity ... The two things we have to fear are fear itself and negative equity, and the depleted capital of financial institutions ... Amongst the things we have to fear are fear itself, negative equity, and the depleted capital of financial institutions.
Non Monty-Python fans should click through his blog to the full text of the Spanish Inquisition sketch, which is one of their best bits.
After the break, a little more serious discussion about why Krugman is moved to sardonic humor.
FDR's immortal line "The only thing we have to fear is fear itself," came in his innaugural address in 1933. It would be 13 long years before the United States and the rest of the world felt anything approaching a lack of fear, first of depression, then of war, which became the only thing that stimulated the economy enough to get the world out of its economic malaise.
As Krugman notes, it is not at all true that the current fear in the markets is irrational, and could be solved only by ceasing to fear.
Among the innumerable other things that are wrong with the global economy are negative equity and depleted capital.
World bankers are acting in crisis mode, as they should, and countries are taking greater or lesser steps to inject capital and liquidity into their markets. There really isn't much they can do about negative housing equity. Someone has to take the hit for the fact that houses are worth a lot less now than they were a year ago, and it probably should be some combination of the people who took out mortgages on that basis and the banks that made the loans.
What everyone agrees, however, is that these steps, even if they are effective, will save us from depression, but will not prevent a fairly severe recession. What will mitigate the effects of the recession, and bring us out of it sooner rather than later? Economic stimulus provided by the federal government. Sooner rather than later, we need to address the declining demand for goods and services through government spending on infrastructure and through middle class tax relief.
The good news is that Obama will probably be elected. The bad news is that our government will only take strong action before 1/20/2009 if the crisis worsens. (Which seems probable if not certain)
Here's to hoping that we can muddle through until the worlds foremost economy has a good leader, and that we can give him all the support that he needs.
We will also have to work hard, after he is elected, to make sure that the history of this time is fairly and surely written. To those who would say "no one expects the derivitives crisis," I say, that might be true in comedy, but in real life, there were lots of people warning about the perils of massive unregulated financial instruments, and no one in power listening.
Let's just hope that we do not get poked too hard with the soft cushion.