rcp:
....But if anything, we are situated even more dangerously. As Paul Krugman has argued in recent columns (ignore his political rhetoric, but his economic analysis sometimes can be persuasive and chilling), financial contagion increases the magnitude of the danger: "Troubles that began a little over a year ago in an obscure corner of the financial system, BBB-minus subprime-mortgage-backed securities, have spread to corporate bonds, auto loans, credit cards and now -- the latest casualty -- student loans."
Current informed commentaries throughout the financial world are loaded with warnings. Krugman wrote that JPMorgan Chase last week "described what's happening as a 'systematic margin call,' in which the whole financial system is facing demands to come up with cash it doesn't have."
We also are experiencing a historic reduction in the value of the dollar. When a banking crisis and a currency crisis occur at the same time, as they are now, they likely are to be followed by a recession, and the recession is likely to be longer and deeper.
And unlike the Japanese crisis of the 1990s, America's dominant place in the world economy increases the likely worldwide effect of our crisis and recession. For example, the subprime mortgage crisis has been exported to the world already because the world has bought those assets, but the world never bought much Japanese real estate mortgage assets in the '80s and '90s. Further adding to the high risk of economic contraction, of course, is the sharp and continuing rise in oil prices.
Of course, we may get lucky. Perhaps the financial institutions will weather the current storm. Perhaps the dollar will bottom out soon. Perhaps the economy will slow down but not contract. But so far, the Fed's repeated interventions have not solved the lack of liquidity. So far, the markets around the world are betting against good news. And there is talk that the massive Fannie Mae and Freddie Mac real estate corporations may have liquidity problems.
So with all this warning, we should expect the presidential candidates to explain in detail how they would deal with this crisis. After all, in 10 months, one of them -- either McCain, Obama or Clinton -- will be president and quite likely will be facing one of the worst financial and economic conditions of recent decades. Instead, we get yet more discussion on who is for hope, who has experience, and who is better able to answer the phone at 3 a.m.
Why not have a novel three-way debate on one of the networks for two hours and see what the three great minds who would be president have to say about what they would do if the likely turns out to happen? I don't have an answer, but I have the first question for them. read more.
Clinton’s Deliberate Race Baiting
Who Can Beat McCain?Obama: the Un-Beholden President
Bogus Big States Argument
Obama’s Pennsylvania Strategy
It’s Still Over for Clinton
Obama Widely Underestimated
