Krugman, O'Neil Make Dire Economic Predictions

As the Big Three automakers told Congress that they need a bailout to prevent calamitous economic consequences, former Treasury Secretary Paul O'Neill and economist Paul Krugman are both saying it may not make much difference.

In an interview with the Pittsburgh Post-Gazette, O'Neill said:

If the United States doesn't get its finances in order, the coming years will make the current recession "look like a child's birthday party," said former Treasury secretary and Alcoa chairman Paul O'Neill.

"We're headed for the wall at lightning speed. And every day that we don't deal with that set of problems is another day closer to absolutely vaporizing our economy," he said.

"Not to overstate the problem."

Krugman, on his blog, wrote:

1. The economy is falling fast. We'll see what tomorrow's employment report says, but we could well be losing jobs at a rate of 450,000 or 500,000 a month.

2. Infrastructure spending will take time to get going -- a new Goldman Sachs report suggests that projects that are "shovel-ready" are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going. Meanwhile, it's very questionable how much effect tax rebates will have on consumer demand. So it may be hard for stimulus to get much traction until late 2009 -- and that's even if Congress goes along, which may be a problem given all the bad analysis and disinformation out there.

So here's what I'm wondering: will it, in fact, even be possible to pull the economy out of its nosedive before unemployment goes into double digits? I'm starting to wonder.

Comments

[Arthur954]

Obama needs to create the position of SECRETARY OF INDUSTRIAL POLICY so that the US has a stable future, and moves away from an economy of speculation and consuming.
Take a look at Germany and all those other countries, they are less affected by the swings of the financial markets because they have a solid base of manufacturing

[exmate]

Do we really want to subsidize the production of cars that are not selling just so that the auto companies can continue to pay those workers for building those cars? Now maybe we would accomplish something with the approach of Henry Ford which paid theworkers enough to be able to buy the cars that they built.. IF THE MIDDLE CLASS HAD ENOUGH MONEY THEY WOULD BE ABLE TO BUY THE GOODS AND SERVICES PRODUCED. INSTEAD WE HAVE HAD A SITUATION WHERE FAT CATS AT THE TOP AMASS MON EY NOT BECAUSE THEY NEED IT BUT BECAUSE THAT IS HOW SCORE IS KEPT.

[exmate]

We need to make some Ad Hoc changes now and for the long run we need to make some fundamental changes in the way we bring up the next generation.
(There goes that word again -change)
For the immediate future, we all need to tighten up our belts. We did not go switly from the depths of the Great Depression in 1932 to prosperity because of FDR although he did help us keep our sanity. We had rationing during WW2 and we counted our blessings. We had deficit spending during the war but after it was over and the rest of the world was reeling, we were pretty intact and we had tough minded battle hardened GIs (aka Tom Brokaw's "Greatest Generation) going to college on the GI Bill and going to work. The auto indusry needs an overhaul. Certainily it needs to build greener cars and maybe it should look at that part of the market that wants more functional, less fancy and less expensive cars that will sell better in markets here and overseas. We should be making solar panels and blades for wind turbines for domestic and foreign markets.
Interestingly, Obama has used a bully pulpit to tell us all to start "acting white" turn off the TV and video games, make sure the homework gets do.
Industial arts needs to get more respect.and money and capital markets need to become less like caninos that allow people to save and business's to raise capital.
.

[research]

Of course we shouldn't waste.

But that is not enough. In fact, alone it is bad.

More business will fail.

FDR put 500B$ (today's dollars) into the new Deal.

WWII put 5 Trillion into the economy.

War or Public works.

That's the choices for recovery.

[exmate]

Some businesses need to fail. That is what makes free enterprise work. Bankruptcy , with the exception of Chapter 7 is a mechanism for salvaging the companies that are salvagable.

A lot of other things were going on during WW2. I remember some of it. We were distracted by the war, we counted our blesings and there was rationing. The national debt went up. After the war when the rest of the world was reeling , we had the greatest productive capacity in the world. We had tough battle hardened GIs returning and going to college on the GI bill and going into the work force. It took the rest of the world years to catch up with us. It does not as simple as the government spending money on wars or public works.

[Roll451]

Contrary to this article's introduction, nowhere did Paul Krugman or Paul O'Neil say that bailing out the auto industry would not make a difference to the economy.

[exmate]

How can the USA continue to be a great economic power if it does not make anything anymore?

[joebhed]

I can see that so many well-meaning people do not have a clue how the money system works.
If they did, their criticisms would be more focused and effective.
And we could start to solve this problem.
I have no idea why the Nobelists are content to point out that the sky IS falling, as opposed to WHY it is falling.
PLEASE, all, Google the Zeitgeist Addendum - get and watch the movie, as it explains the money-creation system in this country and in most of the world since the Bretton Woods agreement at the end of WW II.
From there you will see that this problem of the "financial" system is really a basic flaw in the debt-money system.
Also, Google - 'Treasury System versus federal Reserve System; it's a four-page paper that could be reduced to two, that lays out the structural basis for government-issue, debt-free money in this country.
Of course, it would work everywhere, and put banks back to lending REAL money in a one-hundre­d-percent-­reserve banking system.
It is THE system that was proposed to FDR at the time he took office and was still under consideration while the interim measures of Glass-Steagall and the FDIC were brought into being.
Henry Ford said it best:
""It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.""

[westcoastsc]

Thank you, Joebhed.

I will investigate everything that you put out there. Sounds like it makes sense. Can you, please, answer at least one of my many questions below. I believe the structure of corporations and the stock market has too little regulation as well as regulation that is not creative enough and not mindful enough of the macro economic world. I don't pretend to be an expert. The business section was one I always avoided. My background is poetry, literature, language, history, and science. I find a total lack of common sense in this crisis. I hope you were tongue in cheek about pointing out why the nobelists are acting the way they are. Unlike most people, I just don't accept authority. The first person I expect to be proven wrong when there is not enough information to define the "science" being discussed, a topic where so much mystery still exists, is the pundit with the simple solutions who has people falling him around like the flautist from childhood fiction who rid the town of vermin.

[DCinFrance]

I most whole-heartedly recommend Zeitgeist Addendum, though it may be a little "heavy" for some. Perhaps those that known nothing of our debt based monetary system start with a somewhat simpler explanation: Google "Money as Debt".

[swanie]

You are all sitting around and bitching while Rome burns ! !

Everybody is responsible for this ! It is NOT a Democratic or a Republican problem ! !

FOR ONCE - PUT AWAY ALL THE PARTISAN BS AND SIT DOWN AND DO SOMETHING TO HELP, NOT SOMETHING TO TEAR DOWN.

Enough said.
.

[MalleusMaleficarum]

Sorry swanie, but you have your head in the sand. While Reagan and Bush, Sr. promised to reduce the deficit, they presided over a massive accumulation of debt. Clinton reversed the trend and built a surplus his policies led to a sustained period of prosperity. Butl when Bush and Cheney arrived, they transformed from 'fiscal conservatives' into "deficit hawks" and literally ransacked the economy with the most colossal deficits in universal history. I doubt that you are aware of the history of the Great Depression, but it was just as partisan then as now. The Republican administration refused to respond to a financial crisis that metastasized. Poor people suffered the most losing their jobs, their homes and -- in many cases -- their lives. The same fate awaits the poor today. The middle class will be hit hardest unless there is serious tax reform to bring America into alignment with other industrialized nations that have progressive tax policies: Ie. the richest pay a greater share of their incomes because they benefit more from the economy.

[westcoastsc]

About Solutions Part 1
Clinton did a lot of good for this country, but he abandoned all of his progressive plans. Did the Republicans have something on him? It can be argued that he inherited the dot com era which freed up a lot of cash because everybody wanted to get into it. Everything was speculation. Money was flowing everywhere. Anybody would have looked good at that time. His charisma helped. Also, with his free trade agreements, it quickly made this country a lot of money. We were prepared to go to business with them; they weren't with us. We made a lot of money, but, then, we sent all our jobs over seas and when they were ready to do business with us we could no longer compete. We became what Clinton said, a "service society". Isn't that a strange concept, doesn't that sound like slavery or extreme classism? As Tom Hartman says, the fastest way to create wealth is to add value to a product, i.e. manufacturing. Much of our manufacturing was defenestrated.

[edwcorey]

Any suggestions, all-knowing one?

[joebhed]

First of all, he, or she, is right , this BS has no party-politic to it.
Second - you have my suggestion above, or below depending on how you structure your page for reading.
Awaiting your reply.

[uvymopkq]

You know, just like the big oil companies finally said, "You guys, you're the ones that are causing us to have all these problems. You won't let us drill where there's oil." For the longest time, all these big, tough business CEOs have gone up to Congress and they've bent over and grabbed the ankles and they do it because they're scared because of all the power government has and we already know that liberal Democrats have made big business and their CEOs their number one enemies. They're on the target list. But it's about time some of these guys went up there and said, "If you guys would get out of our world, if you would get out of our business and let us run the business as we know how to do it, we won't be up here begging you for money." Don't you find it interesting that every business in the country and every state in the country is begging for money from the US government? Isn't it interesting? Why is this? Why is all of this happening? Is everybody in the private sector this stupid? Are all of these people that dumb that they do not know how to run a business?

[marinade]

The answer to your last question is yes, executives in the private sector are pretty stu pid. They spend their time scr ewi ng around with the accounting to boost the bottom line to make things look good in the short term. The rest of the time they are finagling sweet severance packages for themselves. They don't do much that's productive.

Congress doesn't sc rew big business. Congress sc rews the American people. Congress takes bribes from big business and, in return, big business gets tax breaks and no-bid contracts without any oversight.

[bobhobard]

Friend-that's not stupid. That's greedy.

[omenapt]

The CEO's have had their feet to the fire from the dang short-sighted "stockholders" (read short term day traders) . Companies have not invested in R/D , or their employess or in much of anything for some decades now, because they have been rewarded by Wall Street for scorch and burn policies that give the SHORT-SIGHTED stockeholders their quick return.
God forbid if social security went private and every near-retiree screaming weekly "BUY!, SELL!" at every downturn at the expense of the companies' abilities to derive any sort of long term vision!

[1003]

Thank You Mr. Bush for ignoring all the signs for the economy down fall! Once again you have proven that as long as your family has theirs, you don't give a crap about the rest of us.

[research]

Wow, we are right back to the Hoover versus FDR transition.

http://larouchepub.com/other/2007/3409fdr_banks_33.html

Same BS from the conservatives.

Read how FDR dealt with the banks.

[westcoastsc]

Is there anyway to make a favorite of all my favorites?

aka thrutheseasons, blueskybigstar, and babymonster

John Stephen Blyth

[research]

Here's another one about Hoover trying the exact same bank bailout BS that didn't work.

http://www.prospect.org/cs/articles?article=can_we_have_a_new_deal_without_the_new_dealers

[Carolab]

Wow, I haven't dared post LaRouche for fear of being called "woo woo"--yet LaRouche's publications are so well-documented. Thanks for this.

[research]

I didn't notice. When something is mostly uncontroversial common knowledge, I take the first site that explains it well.

[AllenD]

Paul O.Neil was one of the few heroes of the Bush Administration.

[westcoastsc]

If the expert is like this, what hope do we have? Wait. It's a bird, it's a plane, wait its Obama.

[Freesia2]

What on earth has Bush done to us? Why did he do this?

[DCinFrance]

Bush is just the clown at the party.

[scouserinlondon]

Because he could.People voted for him.

[westcoastsc]

The whole Louise the 14th thing.

[chronic]

I said on day one after the supreme court gave the election to jr back in 2000 that America is in trouble.


The Bush/Cheney junta and The Republican Cr!me Synd!cate are d@ngerous.

[robXdion]

I was saying that in October 2000 when everyone was grinning and singing his praises like he was a stud. I saw then what people are seeing now. It was like watching a friend get in a car stone drunk and drive away. You just know it's gonna end badly.

[TomInJax]

I knew before he was elected in 2000. I told everyone that if he becomes President this country would never be the same. I was nowhere near the political junkie I am now. It was just a hunch. Something in my gut. It was his eyes and his smirks. His eyes always looked shifty to me. I mean even on his way out of office he and his thugs are working to loosen consumer regulations and god knows what else.

God how I wish I had been wrong.

[Carolab]

He did it for his "base"--the haves and have-mores, remember?

[1099]

That is a silly statement. Plenty of people who you would consider the "haves" are getting killed in this economy and losing boatloads of money.

[ThePeacemakers]

I saw Krugman on Bill Mahr's show this season. Bill asked him where he was keeping his money these days. He didn't answer the question and his eyes glanced away before he gave an evasive answer.

Bet he's not keeping too many dollars....

Look out people. Obama administration may create jobs and increase wages...but there are forces at hand to take down the US financially. If the administration succeeds in creating jobs and increasing wages, hope that we're not looking at dollars that aren't worth anything.

[Beachchick]

I agree that the collapse of the dollar isn't a pleasant thought but a weakened dollar will help exports. We just need China to agree to encourage their domestic consumption and increase the value of the yuan. I am not optimistic China is eager to play along, but if they don't try to right this ship, the US will go completely belly up.

[EspressoAtNoon]

Unfortunately, we're no longer a manufacturing country - we outsource all that to cheap labor countries. As a result our exports play a far lesser role in our overall well being.

[Carolab]

Since you bring that up, here's an interesting article--China and India are apparently to be invited to become members of the Trilateral Commission next year.

http://www.carsondaly.tv/blog/tag/trilateral

The Trilateral Commission plans to invite China and India to join them next year, according to the Sankei Newspaper, one of Japan's leading dailies.

http://sankei.jp.msn.com/world /america/0­80510/amr0­8051018540 09-n1.htm

In an article dated May 10th, 2008, the paper, citing un-named Trilateral Commission sources, says many Trilateralists have been complaining in recent years that the commission should disbanded because, without India and China involved, it had become meaningless.

As a result of these complaints, it was decided at the April Trilateral meeting in Washington to invite China and India the club.

"Adding India and China to the commission will be an event of world historical importance," the paper quotes Masa Yamamoto, a Tokyo-based Trilateral commissioner, as saying.

Both Japanese and US Trilateral commission members have [said] in the past the commission was becoming irrelevant. The Japanese members complained that the US and European members never took their advice and so that Japan was beginning to distance itself from the organization.

[DCinFrance]

We've had a "weakened" dollar for over 5 years now, and it has not done a thing to help our balance of trade. And we're not talking a few pennies, either. When the Euro came out, it was worth 80 cents. The Euro has fallen (as opposed to the dollar rising) over the last couple of months because of the crisis, but it was holding at about $1.60 or better. The difference in balance of trade? Negligible.

[Carolab]

I don't know how much Obama can do, since he is apparently under the control of The Trilateral Commission. Its mission is to save the elites in NA, western Europe and Japan, not US.

[DCinFrance]

It the entire debt-based monetary system that is collapsing. The writer is correct--the recession is nothing. In fact, we were only at -0.5% for the third quarter. At the same point in the 2001 recession, we were at -1.5%. So why is everyone running around--the entire western world mind you--like chicken little with over a trillion world wide bailout programs to prop up the sky? Because "money" is created out of thin air; it is created on credit, and when you let the underpinning of they system go greedy-wild, there's nothing else to prop it up, but more air.

There's only one way out. Cancel All Debt. All of it. Every bit of it. Start all over.

[westcoastsc]

All of it? How about 20% for homes up to 2 and 70% for credit cards?

[DCinFrance]

Nope. Every bit of it. Canceled. Not bought with more credit (read that debt) based money, just completely erased -- everyone, everywhere. It's the only thing that might save us from what's coming.