Unemployment Set to Rise: The Trump Economy Faces Long-Term Disaster

More horrific unemployment numbers are expected today and tomorrow even as some states begin - perhaps prematurely - to reopen their economies.  Indeed, some expect the unemployment numbers to be the worse since the Great Depression of the 1930's.   Donald Trump, who claimed credit for the robust economy he inherited from Barrack Obama is now faced with owning an economic disaster that may continue for some time as numerous businesses fail to reopen and large corporations refrain from re-hiring all of their employees.  Meanwhile, some major retailers are facing bankruptcy and possible closure.  A piece in CNN looks at the likely chilling unemployment numbers and the impact on Trump's chances on retaining the White House.  Here are excerpts:

The staggering economic pain -- perhaps the worst since the 1930s -- of the American economy in the time of coronavirus will be graphically underscored in two new rounds of unemployment data that are due on Thursday and Friday.

The figures will show Americans who have and will lose their livelihoods as common victims of the most cruel public health crisis in 100 years, along with the sick and the more than 73,000 people who have so far died.

The prospect of a prolonged economic slump will have important implications in politics. It is already threatening to dampen memories of the roaring economy that President Donald Trump was banking on to carry him to a second term. It may also provide an opening to presumptive Democratic nominee Joe Biden who helped bring the country back from the last economic crisis in the Obama administration.

Every day brings signs that what first looked like temporary job cuts could turn into permanent layoffs. GE, Airbnb and United Airlines this week for instance announced cuts in thousands of positions as business dries up. Discouraging news on the wider penetration of the virus raises the possibility of new spikes in infection that could further complicate the path to a full recovery.
 The emerging reality that the "rocket" like rebound the President predicted is unlikely may be behind Trump's increasingly frantic statements on a emergency he has also claimed will soon be over. . . . For weeks early this year, Trump was in denial and painted the threat from the virus as tiny. The worsening economic news will introduce a new dimension into the November presidential election clash between the President and his Democratic challenger, former Vice President Biden.

Trump is already under heavy pressure over his erratic management of the coronavirus pandemic and his initial assurances that a disease that has now infected more than a million people in this country didn't pose a threat. [P]ersuadable voters will now have two new questions to answer in the election: Is Trump the best candidate to lead the country out of both a prolonged duel with Covid-19 and to put the economy that has been shattered by the pandemic back together? The economic damage is almost inconceivable already and it will be laid bare in two sets of what are likely to be awful jobs numbers on Thursday and Friday.

First up is weekly jobs data on initial unemployment claims -- the measure that has recorded the terrible toll of weekly layoffs that have now topped 30 million people as the economy has gone into suspended animation.

To end the week, the Trump administration is braced for what could be the most disastrous unemployment numbers since the Great Depression. Economists polled by Refinitiv are expecting an unemployment rate at 16%. It's possible that 10 years of jobs gains will have been wiped out in just a couple months.

One of [Trump's] the President's top economic advisers, Kevin Hassett, has been preparing the country for an unemployment rate of up to 20%. That's more than 15 percentage points higher than the 50-year lows in the jobless rate that Trump was celebrating just weeks ago. Trump is now openly campaigning for the country to open up, despite studies that show tens of thousands of people could die in new outbreaks of the disease. . . . But despite widespread demonstrations by conservative groups against governors who are keeping their states shut down, polls suggest that many Americans are wary of resuming normal life.

Nearly two-thirds of those asked in the Monmouth poll were concerned that states will begin lifting restrictions too quickly. And only 33% share Trump's implied view that stopping the economy from going into a deep, lengthy downturn is more important than stopping people getting sick.

The initial economic trauma of the shutdowns is likely to be exacerbated by sobering facts on the state of the pandemic. While cases are dipping in worst-hit regions such as New York and New Jersey, they are actually rising in many states yet to peak.

If new infections do emerge on a wider footprint than the previously worst affected areas on the coasts and in the city, the consequences for the economy could be even more serious.

Service jobs in restaurant, leisure, and travel sectors are unlikely to recover when the public is wary about going out.

And rising infections could take another swipe at the health sector which helped drive recent jobs gains but has been hammered in recent months, with elective surgeries and routine appointments canceled.

The Gratuitous GOP Caused Recession

Failed GOP policies drove the nation to near economic collapse and more than four years latter the GOP obsession with budget and spending cuts is gratuitously keeping the country in recession.  Indeed, the same sort of voodoo economics that prolonged the Great Depression in the 1930's is being promoted by the Republican Party.  During Barack Obama's first term this was deliberately done in the hope that Obama would be a one term president.  Now, the GOP goal is to keep the country in economic malaise so as to deprive Obama credit for economic prosperity.  As for the millions of Americans harmed by this approach, the GOP doesn't give a damn.  Rather, it is all about partisan politics and pandering to extremists within the GOP.  Ironically, it is the Republicans who are always quick to label others as traitors or "un-American" yet it is they who are the ones betraying the country.  A piece in Raw Story looks at the gratuitous recession that comes compliments of the GOP.  Here are highlights:

Paul Krugman, the New York Times columnist, economics professor at Princeton University and Nobel prize winner talked to Bill Moyers on Jan. 11 about what he believes is the best path forward to a strong economic recovery.

When Moyers asked what the Treasury should do to help the economy, he said, “Campaign against this austerity obsession. We’re not going to get a big new stimulus package, much as I would like to see it. No, we’re not going to get it this year, anyway. But I’d like to see him saying when somebody says, ‘Well, we need to slash here, we need to slash there.’ And he would say ‘Why would we want to be doing that now? That’s actually going to hurt the economy.’”

“This is the same kind of animal that we confronted in the ’30s. This is depression economics. And the nature of the solution is not really very different now from what it was then,” he said later.

“Depression economics is when the normal things you do to boost the economy, have the Federal Reserve cut interest rates a little bit, are no longer available or effective. It’s a situation where the normal rules of what you– of economic policy, have to be put on hold, and you really need to do extraordinary stuff,” he explained.

He argued that “the core thing, the thing that we know works, the thing that all the evidence of history says works in a situation like this is the private sector won’t spend, government can step in and provide the spending that we need in order to keep this economy afloat.”

He went on to say that the poor economy was “gratuitous” because if Congress could be convinced that “deficit spending, for the time being, is okay” and that a major jobs programs should be created, “it would all be over. It would be no problem at all.”

As I said at the outset, the GOP doesn't want the recession over.  The saboteurs in the GOP want the economic malaise to last another four years.  The damage done to millions of Americans simply doesn't matter to this rabid dog political party.

GOP Economic Madness

Personally, I am fairly convinced that most of the Republican Party is out to destroy the nation's economy solely for the purpose of trying to block Barack Obama's re-election. Sadly, the damage done to families and workers doesn't appear anywhere on this purely partisan radar screen. Average Americans are purely disposable to this element in the GOP. In addition, there are those in the GOP that put economic ideology over objective reality and similarly threaten the lives and economic well being of many Americans who, unlike the very wealthy so loved bu the GOP, are not in a position to fall back on their wealth and ride out the economic storm. Paul Krugman looks at this bleak picture in a column in the New York Times. Here are some highlights:

Apparently the desperate search of Republicans for someone they can nominate not named Willard M. Romney continues. New polls suggest that in Iowa, at least, we have already passed peak Gingrich. Next up: Representative Ron Paul.

In a way, that makes sense. Mr. Romney isn’t trusted because he’s seen as someone who cynically takes whatever positions he thinks will advance his career — a charge that sticks because it’s true. Mr. Paul, by contrast, has been highly consistent.

Unfortunately, Mr. Paul has maintained his consistency by ignoring reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.

Mr. Paul identifies himself as a believer in “Austrian” economics — a doctrine that it goes without saying rejects John Maynard Keynes but is almost equally vehement in rejecting the ideas of Milton Friedman. For Austrians see “fiat money,” money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression — and which was actually carried out by Ben Bernanke this time around.

[T]here has, indeed, been a huge expansion of the monetary base. After Lehman Brothers fell, the Fed began lending large sums to banks as well as buying a wide range of other assets, in a (successful) attempt to stabilize financial markets, in the process adding large amounts to bank reserves.

Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation. One popular Austrian commentator who has advised Mr. Paul, Peter Schiff, even warned (on Glenn Beck’s TV show) of the possibility of Zimbabwe-style hyperinflation in the near future.

So here we are, three years later. How’s it going? Inflation has fluctuated, but, at the end of the day, consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent. Who could have predicted that printing so much money would cause so little inflation? Well, I could. And did. And so did others who understood the Keynesian economics Mr. Paul reviles. But Mr. Paul’s supporters continue to claim, somehow, that he has been right about everything.

Still, while the original proponents of the doctrine won’t ever admit that they were wrong — my experience is that nobody in the political world ever admits to having been wrong about anything — you might think that having been so completely off-base about something so central to their belief system would have caused the Austrians to lose popularity, even within the G.O.P.

What has happened instead, however, is that hard-money doctrine and paranoia about inflation have taken over the party, even as the predicted inflation keeps failing to materialize.

[I]t’s still very unlikely that Ron Paul will become president. But, as I said, his economic doctrine has, in effect, become the official G.O.P. line, despite having been proved utterly wrong by events. And what will happen if that doctrine actually ends up being put into action? Great Depression, here we come.

I guess it must be the Christianist influence on the GOP that explains this lunacy. After all, who more than the Christianist make ignoring objective reality (and scientific fact) a matter of doctrine and policy?

Misplaced Priorities on the Economy

Paul Krugman has a column in the New York Times that in part repeats what he's been saying all along - the economy is in trouble and appropriate steps have not been taken to try to fix it. Housing continues to see a downward spiral - the supposed programs to help distressed home owners keep their homes is the most incompetent mess one would ever hope to see - and unemployment remains abysmally high. The result is declines in consumer spending and a case of Congress and the White House figuratively fiddling while Rome burns. Sadly, I have come to believe that the GOP is relishing the mess believing that the worse things get, the better their chances of retaking the White House. The number of families losing their homes and the struggles of average citizens aren't even on the radar. Here's Krugman's assessment of the misplaced concerns of those who might have made a difference:

In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things. . . . . It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.

For two years, officials at the Federal Reserve, international organizations and, sad to say, within the Obama administration have insisted that the economy was on the mend. Every setback was attributed to temporary factors — It’s the Greeks! It’s the tsunami! — that would soon fade away. And the focus of policy turned from jobs and growth to the supposedly urgent issue of deficit reduction. But the economy wasn’t on the mend.

[W]hen employment falls as much as it did from 2007 to 2009, you need a lot of job growth to make up the lost ground. And that just hasn’t happened. Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

These may sound like dry statistics, but they reflect a truly terrible reality. Not only are vast numbers of Americans unemployed or underemployed, for the first time since the Great Depression many American workers are facing the prospect of very-long-term — maybe permanent — unemployment.

And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back. Now it looks as if it’s all about to get even worse. So what’s the response?

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away. Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more . . .

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment . . .

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

This might or might not work. But we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.

It's pretty distressing stuff - especially since Obama and the Democrats have no spines and will likely allow the GOP to control the political messaging just as they have for the last two years. It makes me sick and angry.

Totally Missing from the Debt Ceiling Deal: Jobs and the Unemployed

What is perhaps the most dismaying aspect of the GOP manufactured debt ceiling crisis is that years into the worse economy since the Great Depression of the 1930's, nothing of significance has been done to address the loss of jobs and the unemployed. And when the spending cuts kick in under the soon to be approved debt ceiling deal, the fall out will likely be more job losses and the addition of more individuals to the ranks of the unemployed or under employed. Shockingly, the GOP and the Tea Party who all to often wear their alleged religiosity o their sleeves care nothing for those falling into the ranks of the unemployed. In the minds of these "godly Christians" the unemployed and their families apparently mean nothing whatsoever. In my own law practice, the number one thing I am seeing in terms of the cause of why homeowners are falling behind in their mortgages is job loss or reduced work hours that devastates their family cash flow. And people wonder why housing isn't recovering? A piece in the Washington Post looks at this forgotten segment of the population - real, living, breathing people. Here are highlights:
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The debt-ceiling deal, as we know, contains no stimulus. Nothing on jobs. No relief for the out-of-work. And that’s a real worry because, at the end of this year, existing emergency unemployment benefits — the ones that were extended as part of the 2010 tax-cut deal — are set to expire. Yet there are still millions of Americans who can’t find work. So what happens to the unemployed at that point? . . . . anyone who loses their job after July 1 this year will get the 20 to 26 weeks, no more.
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The macroeconomic effects of failing to extend could be significant. Chad Stone, an economist at CBPP, walked me through a back-of-the envelope calculation. Currently, about 3.8 million people receive those additional, federally funded benefits scheduled to expire. The average benefit is about $1,300 a month. That comes to roughly $60 billion a year in spending. Now, UI benefits are one of the most effective forms of stimulus out there — people without jobs tend to spend most or all of the money, rather than pocket it. Moody’s chief economist Mark Zandi estimates that every dollar spent on unemployment benefits boosts GDP by about $1.60.
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Add it all up, and letting unemployment benefits dwindle could provide a hit to the economy of about 0.5 percent of GDP. That’s a sizeable dent, especially when we’re barely seeing any economic growth as it is.
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Conservatives might be inclined to say, fine, that will force people to look for work. They might even cite Harvard economist Robert Barro’s suggestion in the Wall Street Journal that the jobless rate would be 3 percent lower if unemployment hadn’t been extended to 99 weeks. But there’s reason to think Barro’s wrong. Conti points out that there are now at least five unemployed people for every one job opening — the main roadblock here hardly seems to be lazy, unmotivated laid-off workers living high on fat UI benefits. Second, two recent studies by the San Francisco Fed and Goldman Sachs suggest that extended unemployment benefits contribute just 0.4 percent to the jobless rate. Cutting off aid would produce a small gain in exchange for a lot of extra hardship.
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Meanwhile, apart from stimulus, unemployment benefits can also benefit the long-term health economy in another way, as Harvard’s Raj Chetty has argued. In a bleak job market, when unemployment benefits expire quickly, out-of-work folks tend to seize the first opportunity that comes along — even if it’s a job for which they’re not particularly suited. We end up with the specter of engineers, desperate to make ends meet, settling for low-wage food-service jobs. Giving people extra time to search can lead to more optimal outcomes.

Housing Crisis Is Now Worse Than Great Depression

I know that I sound like a broken record, but when is somebody - indeed ANYBODY - in Washington going to wake up and try to stem the continued free fall of the housing market? I don't care if its a Democrat, Republican, Libertarian or member of some other group that wakes up to the ongoing disaster so long as somebody wakes up and puts in place policy and regulatory reforms that stop the constant downward spiral. Why am I so exercised? Because a new report discloses that nationwide the crash and burning of the housing market is now worse than what happened during the Great Depression. Yet Congress and the White House continue to do nothing of any substance. Here are highlights from CNBC:
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It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.
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"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
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More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward. Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default.
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Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.

1938 Deja Vue

With the Neanderthals in the GOP demanding that government spending be slashed - of course without identifying what they'd cut - Paul Krugman has a timely column that looks at the parallels between 2010 and the situation in 1938. Krugman makes the case that only more government spending can get the economy truly headed back in the right direction. The question is whether we will learn from history or go down the wrong path and the resulting economic stagnation that is taking such a heavy toll on so many American families. Unfortunately, I fear that those inside the belt-way who worry only about short term political gain will convince a public woefully ignorant of true history, including economic history, to move in the wrong direction. The possible winners will be the GOP that created the financial bubble in the first place and then opposed corrective action. Especially, given the leadership vacuum in the White House and Obama's insane reliance on economic advisers who were deeply involved in creating the current mess. Here are some column highlights from the New York Times:
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Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections. The president in question is Franklin Delano Roosevelt; the year is 1938.

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Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out.
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And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.
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The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.
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From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today. Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today.
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The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse.
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But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.
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I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

A Page From the Hoover Playbook

I recently posted commentary on the obstructionist tactics currently being utilized by the Congressional GOP to delay and disrupt efforts to pass a comprehensive stimulus package. Not being content with the financial shambles in which they and the Chimperator have left the country, the GOP leadership in Congress seems to be trying to push the nation towards another Great Depression. As is now the norm for the GOP, extreme reactionary ideology is again trumping the best interests of the country and everyday Americans. Harold Meyerson has a new column in the Washington Post that looks at this phenomenon further and which underscores why knowing real history - as opposed to some Christianist rewrite - is absolutely important. Here are some highlights:

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As the nation navigates through the most perilous straits it has seen since the 1930s, policymakers are looking back to the '30s to see which of the paths that Depression-era America embarked upon actually led toward recovery. Well, some of our policymakers. Others, it seems, have seized upon the very policies that deepened the Depression and are repackaging them as solutions for our time.

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In Monday's meeting between President-elect Barack Obama and congressional leaders, Senate Republican leader Mitch McConnell suggested that instead of providing aid to the states to help them meet their Medicaid and education obligations, the federal government offer them loans. The idea is ridiculous on its face: With revenue drying up, states are already slashing services and reducing their workforces, which only deepens the downturn. The last thing they'd be inclined to do would be to take on more debt at the very moment they're struggling to balance their budgets.

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But back to my original point: This idea was tried once before, in the depths of the Depression. In 1932, Congress appropriated $300 million to the Reconstruction Finance Corporation to send to the states for unemployment relief. . . . Unfortunately, Herbert Hoover's RFC didn't offer the funds to the states as grants but as loans. Already all-but-insolvent, many states didn't take the offer. And the economy continued its plunge into the abyss. This is Mitch McConnell's idea of a policy worth reviving.

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Such historical illiteracy can result not only in cures that kill the patient but is also a cause of our current crisis. . . . Wall Street [and the GOP] should have hired a handful of hists (my version of Wall Streetese for economic historians). Those hists might have insisted that the risk models include data from the late 1920s, the last time that America's financial institutions were as highly leveraged and as lightly regulated as they were last year. . . . Unfortunately for us all, it's on the question of how to restore broadly based prosperity that the historical illiteracy of the American elite is at its most acute.

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The business lobby is throwing big money into ads opposing the Employee Free Choice Act (EFCA), which would make it easier for workers to join unions, but one concern it has neglected to address is how the United States can again become a land of broad-based affluence with private-sector unionization at its current 7 percent level. There is no historic precedent for mass prosperity absent mass collective bargaining. The model cannot be constructed.

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Happily, Barack Obama seems to have learned the right lessons from America's economic history. He knows that the stimulus package needs to be big enough to compensate for the collapse of bank lending. He knows that unemployment insurance and food stamps cannot be allowed to run out. He supports the EFCA as a way to boost Americans' incomes.

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The problem is that a number of powerful members of Congress aren't much more historically literate than McConnell. Some Republicans advocate time-honored business tax breaks that have never done anything to jump-start the economy.

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Now is a time when innovative thinking is needed. Sadly, the Christianist controlled GOP is incapable of innovative thinking and will not consider supporting any policies that run counter to the anti-union and anti-progressive mindset of the party's Kool-Aid drinking base.

Fighting Off Another Great Depression

Nobel Prize winning columnist Paul Krugman has another piece in the New York Times which ought to send shivers down everyone's back, including GOP members of Congress who seem Hell bent on torpedoing much need stimulus legislation. Unfortunately, signs are that Obama is seeking to placate them rather than hold them responsible for the mess in the first place. The reality is that we've played by the rules of the GOP and the Chimperator - which basically were that there are no rules and regulations - and the result has been disaster. We need prompt action, not playing nice with those who care nothing about most members of society. It appears to be a case of those who created the problem now blocking efforts to fix the problem. A case of Nero fiddling while Rome burns. Obama needs to get more backbone. Here are some column highlights which are not pretty:

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“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case. The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

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So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out. We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. . . . It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.

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John Maynard Keynes, who argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans to rescue the economy. But these plans may turn out to be a hard sell.

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In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years. More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren’t going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.

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All of this leaves me concerned about the prospects for the Obama plan. I’m sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.

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Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going. So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?

Economic Moment of Truth

As the world wide stock market bloodbath continues unabated - the overseas exchanges plunged overnight - it seems that those who promised swift action in the Chimperator's administration are still sitting on their hands instead of acting. Paul Krugman looks at this problem in his column today in the New York Times. The bottom line is that either swift, meaningful action is taken or things will continue to get worse. What is so frightening is that we are at the mercy of an administration that has done virtually nothing right - be it the disastrous Katrina response, an ill advised war motivated by hubris, and much more - for most of the last eight years - a very, very frightening prospect indeed.Perhaps much worse. Here are some highlights:

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Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.

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The consequences of Lehman’s fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression.

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Let’s talk about where we are right now. The current crisis started with a burst housing bubble, which led to widespread mortgage defaults, and hence to large losses at many financial institutions. That initial shock was compounded by secondary effects, as lack of capital forced banks to pull back, leading to further declines in the prices of assets, leading to more losses, and so on — a vicious circle of “deleveraging.” Pervasive loss of trust in banks, including on the part of other banks, reinforced the vicious circle.

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The response to this downward spiral on the part of the world’s two great monetary powers — the United States, on one side, and the 15 nations that use the euro, on the other — has been woefully inadequate. . . . What he [Treasurery Secretary Paulson] should have proposed instead, many economists agree, was direct injection of capital into financial firms: The U.S. government would provide financial institutions with the capital they need to do business, thereby halting the downward spiral, in return for partial ownership. When Congress modified the Paulson plan, it introduced provisions that made such a capital injection possible, but not mandatory. And until two days ago, Mr. Paulson remained resolutely opposed to doing the right thing.

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What should be done? The United States and Europe should just say “Yes, prime minister.” The British plan isn’t perfect, but there’s widespread agreement among economists that it offers by far the best available template for a broader rescue effort. And the time to act is now. You may think that things can’t get any worse — but they can, and if nothing is done in the next few days, they will.