The Warning

I’m going to make the (safe) assumption that a world-leading economist recognizes the dangers of crying “WOLF!” when the economy is so fragile. As some of you are now piecing together, I’ve been checking Paul Krugman’s track record -- what he predicted versus what has really happened.

In my quick and dirty look -- he has been frighteningly accurate.

Let me refresh your internal clock. This is from February of 2008. It is literally the first article I looked at. Barack Obama hasn’t even sewed up the Democratic primary yet. It’s a month before Bear Stearns collapsed and 7 months before the rest of Wall Street followed them.

Don’t Rerun That ’70s Show


”If all this sounds familiar, it should. Many economists have pointed out the parallels between the current situation and the early 1990s: another real estate bubble, subprime playing more or less the same role formerly played by bad loans by savings and loan institutions, financial trouble all around.

The difference is that the problems look a lot worse this time: a much bigger bubble, more financial distress, deeper consumer indebtedness — and sky-high oil prices added to the mix. So if history is any guide, we should be looking at an extended period of economic weakness, probably extending well into 2010, and quite possibly even longer.“

I suggest that when this guy warns you of the next depression...??? You should pay attention.

The Third Depression

”We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. “

My suggestion is to call your Congressman, tell them to borrow whatever we need to put people back to work and extend unemployment benefits. And -- most importantly -- that you’ll support them when they have to vote to raise taxes to pay for it all when times are better.

Don Brown
June 29, 2010