Econ: The Forecast is...?

[chequita guevara]

Indeed a combination of both... though I wouldn't say "modern Capitalism" is built on air, just a large portion of it (the finance/investment industry). If there were a practical and implementable way to reform the stock market to remove the focus on gambling and return it to actually investing in actually doing business, I'd be the first proponent of it... sadly I can't figure out a way (the only step remotely feasible is shutting down the options market entirely, but I think that won't accomplish much and is of debatable acceptability anyway).

Perhaps you can't find it because there is no way.

[Zkribbler]

Using the price/earnings ration as a measure of the stock's value is, often times, a way to reduce the gambling aspect of the stock market. But so many people buy based upon what they predict the price will be at sometime in the future, so they'll always be a gambling aspect.

[Kidlicious]

Indeed a combination of both... though I wouldn't say "modern Capitalism" is built on air, just a large portion of it (the finance/investment industry). If there were a practical and implementable way to reform the stock market to remove the focus on gambling and return it to actually investing in actually doing business, I'd be the first proponent of it... sadly I can't figure out a way (the only step remotely feasible is shutting down the options market entirely, but I think that won't accomplish much and is of debatable acceptability anyway).

Only a small proportion is invested in actually doing business. If all the capital in the system were to be diverted to actual business the result would be massive overinvestment like you've never seen.

[The Mad Monk]

Big Bear Market Rally of DOOM

Transcript, Glenn Beck Show, March 9, 2009 - 12:30 ET:

So let me think out loud with you. I was talking to Jim Rogers. He was George Soros' old partner. And Jim is a guy, is American. He moved his family, what, two, three years ago to Singapore because he said at the time Singapore is the future. And he said America is making too many critical errors and they're just, we are going to be left in the dust. And so he moved his family away from America. Now, CNBC used to have him on all the time when he was saying good things and then after he started saying things like, you know, the market's going to head for a crash and we're going to head for a depression and it's going to be ugly like you won't believe, all of a sudden he was marginalized as a kook and then, you know, he found himself, you know, in five different boxes on television and they would only say one thing, and the four people in the other boxes would yell at him. And so he was marginalized. Well, now he's starting to look really, really smart again, not because he's changed anything he said. It's because he didn't change what he had to say.

We had him on the show, what, last week and we had him for, I don't know, 15 minutes. And he said something. I said, you know, Jim, everybody is talking on television, you know, to the billionaires and the millionaires and the people who have all kinds of investments and, you know, understand the treasury bills, and I don't even know what -- I barely even knew how the treasury worked two years ago. I mean, who's got -- well, I'm a -- hey, Bob, did you hear this at the gas station this weekend? Hey, Bob, what did you do with your treasuries? What is that? I said, I just want to ask you if you have money in a 401(k) and it's all the money you have in the world, what do you do? What do you do? You've already lost about half of it. What should you do? What should the average person do? And he said at the time, he said wait for a rally and then get out.

Now, when he said that, I thought he meant, you know, maybe 200, 300, 400 points and then pull your money out. I don't think so. I can be wrong. I know nothing about this. Listen, this is not a financial show, a financial advice show. I have no place to tell you. I can tell you what I'm thinking. I can tell you what I'm doing. You've got to go seek an expert out. You've got to do your own homework. You've got to make your own decisions. Don't -- you know, people go, "Oh, he's just saying that so he can hedge his bet." No, I mean that. I didn't know how the treasury worked two years ago. So I'm the last guy you should go to for advice. When he said that, I was thinking about a small rally. But over the weekend as I'm doing my homework, there is something called a bear rally. I never heard of it. Apparently it's rare that a big bear rally would happen. And what it means is in the market of fear where everybody is right now, all of a sudden the market starts to rally and it can go up, you know, from 400 points to 4,000 points. It could just rally all the way up. But it's not real. And a bear rally then comes down and comes crashing down and destroys all of the wealth.

I will tell you that I have -- if you're a long-time listener, you know I have somebody who talks to me, a deep throat, but I have several people that don't want to talk to me on the record that tell me things, and there's somebody that I really truly respect that has said the market is going to go through a violent swing. It will go rocket high and crash down low. Said that about two weeks ago. I thought it was what we were doing here, you know, where we go up a couple of hundred points and then down, up and down, up and down. I don't think so. Again I'm thinking out loud.

I think there's going to come a time, because bubbles bother me now. Bubbles really bother me. Group think really bothers me because when the experts -- and so far the experts aren't saying this. When the experts all say something, I think it's usually wrong. I don't -- they don't -- they have been wrong every step of the way. And now the group think, I trust your gut better than any other expert, and I trust my gut. My gut still says there are fundamental problems with this country. There are fundamental problems. There's nothing real. We have a spending problem and we have a production problem. We don't make anything anymore. We just spend and create paper. That's all we do. That doesn't make sense. That doesn't work. It works for a while, but it doesn't make sense. When they're telling you, "Oh, you've got to go out and buy, got to go out and buy." Why? What are we creating? How is that helping our children? That's just ratcheting up debt.

http://www.glennbeck.com/content/articles/article/198/22471/

As per the timestamp, he said this just before the current big rally. The timing is just a little scary.

[Victor Galis]

I personally prefer the term: dead cat bounce.

[Theben]

Or more sensibly one might conclude that a lot of that paper wealth never really existed.

Or one might conclude that value is imaginary and thus subjective. There is no such thing as true wealth. It is a human concept and a reason why perception is so important to the markets. Even those shiny yellow metal bars are pretty worthless when you think about it. Food, water, clothing, shelter, and weapons to keep the previous 4 are about it.

[Japher]

This dead cat might bounce pretty damn high though.

[Naked Gents Rut]

PRESIDENTIAL candidates campaign with soaring rhetoric, but presidents and their advisers make actual policy with spreadsheets. So for policy wonks like me, there is no better place to learn what President Obama really believes than the budget proposal released late last month.

Here are four lessons we can learn from the budget documents about the president and his economic team:

THEY ARE ECONOMIC OPTIMISTS Like everyone else, the president’s economists expect 2009 to be a grim year of falling national income and rising unemployment. But despite all the talk about the worst crisis since the Great Depression, they expect their policies to bring the recession to a swift conclusion. For the next four years, they forecast an average growth rate of 4 percent. The unemployment rate is projected to fall to 5.2 percent in 2013.

Not everyone is so sanguine. The administration forecast is “way too optimistic,” said Nariman Behravesh, chief economist at IHS Global Insight and author of the excellent primer “Spin-Free Economics.”

Let’s hope that the administration is right. But if I had to bet, I’d put my money on Mr. Behravesh.

THEY LIKE TO SPEND In light of the economic downturn, the stimulus package and all the bailouts coming out of Washington, it is no surprise government spending is skyrocketing. According to the president’s budget, federal outlays will be 27.7 percent of gross domestic product in 2009 and 24.1 percent in 2010 — levels not reached since World War II.

But more telling about the president’s priorities is what happens to spending after the crisis is well behind us, at least according to the administration’s forecast. In a second term for Mr. Obama, with the economy recovered and unemployment stabilized at 5 percent, federal outlays would be 22.2 percent of G.D.P. — well above the average of 20.2 percent over the last 50 years.

It is also well above levels in recent history. Before the financial crisis hit in 2008, federal outlays under President George W. Bush never exceeded 20.4 percent of G.D.P. That includes spending from the Iraq war. President Obama is counting on that conflict being over, and no new money-draining military commitment taking its place. Yet federal spending still remains high.

To be sure, part of the increase in government spending is driven by the aging of the population. As more baby boomers retire and become eligible for Social Security and Medicare, spending rises automatically. But President Obama’s focus on universal health insurance suggests that he is more interested in expanding the benefits that Americans can claim than in reining in the unfunded entitlements already on the books.

THEY ARE SERIOUS ABOUT CLIMATE CHANGE President Obama’s budget makes clear that he wants to address the problem of global climate change. This commitment stands in stark contrast to policy during the previous two administrations.

President Bill Clinton offered the Kyoto Protocol, but the policy ended up more symbolic than real. The treaty was overwhelmingly rejected by both parties in Congress, in part because it left out China, now the world’s largest emitter of carbon. President Bush rejected the Kyoto principles as well, but he never made finding an alternative approach to climate change a major priority.

For the new administration, climate change is not only an environmental issue but a budgetary one as well. Under the proposed cap-and-trade system, the government would auction off a limited number of carbon allowances. The cost would be passed on to consumers as higher energy prices, encouraging conservation. According to President Obama’s budget projections, the system would also raise more government revenue than his much-discussed tax increases on upper-income households.

The thrust of the policy makes sense, but several questions remain. First, why not instead impose a more transparent and administratively simpler tax on carbon emissions? Is it merely because the phrase “climate revenues” used in the budget is more politically palatable than the word “tax”? More important, how will the president get China on board? Without China’s participation, any climate policy, along with the associated revenue, may be a political nonstarter.

THEY ARE DEFICIT DOVES Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn. What is more telling is what happens to the deficit during normal economic times. From that perspective, the Obama budget policy looks surprisingly similar to the Bush version.

From 2005 to 2007, before the current crisis, unemployment in the United States hovered around 5 percent. During those years, the budget deficit averaged just under 2 percent of G.D.P.

In the Obama administration’s forecast, unemployment again reaches 5 percent in 2014 and remains at that level thereafter. But despite that rosy prediction, the budget does not get close to balance. The Obama team calculates that under its proposed policies, the budget deficit will average a bit over 3 percent of G.D.P.

So if you are a deficit hawk who lamented the Bush budget deficits, the new president’s budget should not make you feel much better. President Obama offers different fiscal priorities than President Bush did: less military spending, more domestic spending and higher marginal tax rates to “spread the wealth around.” But the borrowing and debt imposed on future generations will not be very different, at least if the numbers in the Obama administration’s own budget document can be trusted.

http://www.nytimes.com/2009/03/15/business/economy/15view.html

I'm not sure the country can take another 8 years of Bush/Obama fiscal policy...

[Seeker]

Why is 'clothing' on the list? I'd be fine with au naturelle

[Victor Galis]

Or one might conclude that value is imaginary and thus subjective. There is no such thing as true wealth. It is a human concept and a reason why perception is so important to the markets. Even those shiny yellow metal bars are pretty worthless when you think about it. Food, water, clothing, shelter, and weapons to keep the previous 4 are about it.

Nah, I don't go that far. I would define real wealth in terms of real assets. Money is only as good as the goods and services it can be exchanged for. The wealth that seemed to exist didn't really because not everyone can cash out their investments at the same time and convert that money into other goods or services.

I'm not sure the country can take another 8 years of Bush/Obama fiscal policy...

You're right, it's about time we restore higher tax rates on the super-rich, and start eliminating loop-holes.

[Naked Gents Rut]

You're right, it's about time we restore higher tax rates on the super-rich, and start eliminating loop-holes.

If only that alone would close the fiscal deficit...

[notyoueither]

A survey of (un)employment around the world.

http://www.economist.com/displayStory.cfm?story_id=13278217&source=hptextfeature

Unemployment
When jobs disappear

Mar 12th 2009 | LONDON, TOKYO AND WASHINGTON, DC
From The Economist print edition

The world economy faces the biggest rise in unemployment in decades. How governments react will shape labour markets for years to come

LAST month America’s unemployment rate climbed to 8.1%, the highest in a quarter of a century. For those newly out of a job, the chances of finding another soon are the worst since records began 50 years ago. In China 20m migrant workers (maybe 3% of the labour force) have been laid off. Cambodia’s textile industry, its main source of exports, has cut one worker in ten. In Spain the building bust has pushed the jobless rate up by two-thirds in a year, to 14.8% in January. And in Japan, where official unemployment used to be all but unknown, tens of thousands of people on temporary contracts are losing not just their jobs but also the housing provided by their employers.

The next phase of the world’s economic downturn is taking shape: a global jobs crisis. Its contours are only just becoming clear, but the severity, breadth and likely length of the recession, together with changes in the structure of labour markets in both rich and emerging economies, suggest the world is about to undergo its biggest increase in unemployment for decades.

In the last three months of 2008 America’s GDP slumped at an annualised rate of 6.2%. This quarter may not be much better. Output has shrunk even faster in countries dependent on exports (such as Germany, Japan and several emerging Asian economies) or foreign finance (notably central and eastern Europe). The IMF said this week that global output will probably fall for the first time since the second world war. The World Bank expects the fastest contraction of trade since the Depression.

An economic collapse on this scale is bound to hit jobs hard. In its latest quarterly survey Manpower, an employment-services firm, finds that in 23 of the 33 countries it covers, companies’ hiring intentions are the weakest on record (see chart 1). Because changes in unemployment lag behind those in output, jobless rates would rise further even if economies stopped contracting today. But there is little hope of that. And several features of this recession look especially harmful.

The credit crunch has exacerbated the impact of falling demand, pressing cash-strapped firms to cut costs more quickly. The asset bust and unwinding of debt that lie behind the recession mean that eventual recovery is likely to be too weak to create jobs rapidly. And when demand does revive, the composition of jobs will change. In a post-bubble world indebted consumers will save more and surplus economies, from China to Germany, will have to rely more on domestic spending. The booming industries of recent years, from construction to finance, will not bounce back. Millions of people, from Wall Street bankers to Chinese migrants, will need to find wholly different lines of work.

For now the damage is most obvious in America, where the recession began earlier than elsewhere (in December 2007, according to the National Bureau of Economic Research) and where the ease of hiring and firing means changes in the demand for workers show up quickly in employment rolls. The economy began to lose jobs in January 2008. At first the decline was fairly modest and largely confined to construction (thanks to the housing bust) and manufacturing (where employment has long been in decline). But since September it has accelerated and broadened. Of the 4.4m jobs lost since the recession began, 3.3m have gone in the past six months. Virtually every sector has been hit hard. Only education, government and health care added workers last month.

So far, the pattern of job losses in this recession resembles that of the early post-war downturns (starting in 1948, 1953 and 1957). Those recessions brought huge, but temporary, swings in employment, in an economy far more reliant on manufacturing than today’s. As a share of the workforce, more jobs have been lost in this recession than in any since 1957. The pace at which people are losing their jobs, measured by the share of the workforce filing for weekly jobless claims, is much quicker than in the downturns of 1990 and 2001 (see chart 2).

The worry, however, is that the hangover from excess debt and the housing bust will mean a slow revival—looking more like the jobless recoveries after the past two downturns than like the vigorous V-shaped rebounds from the early post-war recessions. Ominous signs are a sharp increase in permanent-job losses and a rise in the number of people out of work for six months or more to 1.9% of the labour force, near a post-war high.

Official forecasts can barely keep up. In its budget in February the Obama administration expected a jobless rate of 8.1% for the year. That figure was reached within the month. Many Wall Street seers think the rate will exceed 10% by 2010 and may surpass the post-1945 peak of 10.8%. Past banking crises indicate an even gloomier prognosis. A study by Carmen Reinhart of the University of Maryland and Ken Rogoff of Harvard University suggests that the unemployment rate rose by an average of seven percentage points after other big post-war banking busts. That implies a rate for America of around 12%.

Moreover, the official jobless rate understates the amount of slack by more than in previous downturns. Many companies are cutting hours to reduce costs. At 33.3 hours, the average working week is the shortest since at least 1964. Unpaid leave is becoming more common, and not only at the cyclical manufacturing firms where it is established practice. A recent survey by Watson Wyatt, a firm of consultants, finds that almost one employer in ten intends to shorten the work week in coming months. Compulsory unpaid leave is planned by 6% of firms. Another 9% will have voluntary leave.

Europe’s jobs markets look less dire, for now. That is partly because the recession began later there, partly because joblessness had been unusually low by European standards and partly because Europe’s less flexible labour markets react more slowly than America’s. The euro area’s unemployment rate was 8.2% in January, up from 7.2% a year before. That of the whole European Union was 7.6%, up from 6.8%. For the first time in years American and European jobless rates are roughly in line (see chart 3).

Within the EU there are big variations. Ireland and Spain, where construction boomed and then subsided most dramatically, have already seen heavy job losses. Almost 30% of Ireland’s job growth in the first half of this decade came from the building trade. Its unemployment rate has almost doubled in the past year. In Britain, another post-property-bubble economy, the rate is also rising markedly. At the end of last year 6.3% of workers were jobless, up from 5.2% the year before. Figures due on March 18th are likely to show unemployment above 2m for the first time in more than a decade.

In continental Europe’s biggest economies, the consequences for jobs of shrivelling output are only just becoming visible. Although output in Germany fell at an annualised rate of 7% in the last quarter of 2008, unemployment has been only inching up. The rate is still lower than it was a year ago. Even so, no one doubts the direction in which joblessness is heading. In January the European Commission forecast the EU’s jobless rate to rise to 9.5% in 2010. As in America, many private-sector economists expect 10% or more.

Structural changes in Europe’s labour markets suggest that jobs will go faster than in previous downturns. Temporary contracts have proliferated in many countries, as a way around the expense and difficulty of firing permanent workers. Much of the reduction in European unemployment earlier this decade was due to the rapid growth of these contracts. Now the process is going into reverse. In Spain, Europe’s most extreme example of a “dual” labour market, all the job loss of the past year has been borne by temps. In France employment on temporary contracts has fallen by a fifth. Permanent jobs have so far been barely touched.

Although the profusion of temporary contracts has brought greater flexibility, it has laid the burden of adjustment disproportionately on the low-skilled, the young and immigrants. The rising share of immigrants in Europe’s workforce also makes the likely path of unemployment less certain. As Samuel Bentolila, an economist at CEMFI, a Spanish graduate school, points out, the jump in Spain’s jobless rate is not due to fewer jobs alone. Thanks to continued immigration, the labour force is still growing apace. In Britain, in contrast, hundreds of thousands of migrant Polish workers are reckoned to have gone home.

Despite having few immigrants, Japan is also showing the strains of a dual labour market. Indeed, its workforce is more starkly divided than that of any other industrial country. “Regular” workers enjoy strong protection; the floating army of temporary, contract and part-time staff have almost none. Since the 1990s, the “lost decade”, firms have relied increasingly on these irregulars, who now account for one-third of all workers, up from 20% in 1990.

As Japanese industry has collapsed, almost all the jobs shed have been theirs. Most are ineligible for unemployment assistance. A labour-ministry official estimates that a third of the 160,000 who have lost work in recent months have lost their homes as well, sometimes with only a few days’ notice. Earlier this year several hundred homeless temporary workers set up a tent village in Hibiya Park in central Tokyo, across from the labour ministry and a few blocks from the Imperial Palace. Worse lies ahead. Overall unemployment, now 4.1%, is widely expected to surpass the post-war peak of 5.8% within the year. In Japan too, some economists talk of double digits.

In emerging economies the scale of the problem is much harder to gauge. Anecdotal evidence abounds of falling employment, particularly in construction, mining and export-oriented manufacturing. But official figures on both job losses and unemployment rates are squishier. Estimates from the International Labour Organisation suggest the number of people unemployed in emerging economies rose by 8m in 2008 to 158m, an overall jobless rate of around 5.9%. In a recent report the ILO projected several scenarios for 2009. Its gloomiest suggested there could be an additional 32m jobless in the emerging world this year. That estimate now seems all too plausible. Millions will return from formal employment to the informal sector and from cities to rural areas. According to the World Bank, another 53m people will be pushed into extreme poverty in 2009.

History implies that high unemployment is not just an economic problem but also a political tinderbox. Weak labour markets risk fanning xenophobia, particularly in Europe, where this is the first downturn since immigration soared. China’s leadership is terrified by the prospect of social unrest from rising joblessness, particularly among the urban elite.

Given these dangers, politicians will not sit still as jobs disappear. Their most important defence is to boost demand. All the main rich economies and most big emerging ones have announced fiscal stimulus packages.

Since most emerging economies lack broad unemployment insurance, the main way they help the jobless is through labour-intensive government infrastructure projects as well as conditional cash transfers for the poorest. China’s fiscal boost includes plenty of money for infrastructure; India is accelerating projects worth 0.7% of GDP. However, a few emerging economies have more creative unemployment-insurance schemes than anything in the rich world. In Chile and Colombia formal-sector workers pay into individual unemployment accounts, on which they can draw if they lose their jobs. Many more countries have created prefunded pension systems based on individual accounts. Robert Holzmann of the World Bank thinks people should be allowed to borrow from such accounts while unemployed. Several countries are considering the idea.

In developed countries, governments’ past responses to high unemployment have had lasting and sometimes harmful effects. When joblessness rose after the 1970s oil shocks, Europe’s governments, pressed by strong trade unions, kept labour markets rigid and tried to cut dole queues by encouraging early retirement. Coupled with generous welfare benefits this resulted in decades of high “structural” unemployment and a huge rise in the share of people without work. In America, where the social safety net was flimsier, there were far fewer regulatory rigidities and people were more willing to move, so workers responded more flexibly to structural shifts. Less than six years after hitting 10.8%, the post-war record, in 1982, America’s jobless rate was close to 5%.

Policy in America still leans towards keeping benefits low and markets flexible rather than easing the pain of unemployment. Benefits for the jobless are, if anything, skimpier than in the 1970s. Unemployment insurance is funded jointly by states and the federal government. The states set the eligibility criteria and in many cases have not kept up with changes in the composition of the workforce. In 32 states, for instance, part-time workers are ineligible for benefits. All told, fewer than half of America’s unemployed receive assistance. The benefits they get also vary a lot from state to state, but overall are among the lowest in the OECD when compared with the average wage.

America’s recent stimulus package strengthened this safety net. Jobless benefits have increased modestly, their maximum duration has been extended, and states have been given a large financial incentive to broaden eligibility. The package also includes temporary subsidies to help pay for laid-off workers’ health insurance. Even so, benefits remain meagre.

Housing is a far bigger drag on American job mobility. Almost a fifth of American households with mortgages owe more than their house is worth, and house prices are set to fall further. “Negative equity” can lock in homeowners, making it hard to move to a new job. A recent study suggests that homeowners with negative equity are 50% less mobile than others.

Europe’s governments, at least so far, are trying hard to avoid the mistakes of the 1970s and 1980s. As Stefano Scarpetta of the OECD points out, today’s policies are designed to keep people working rather than to encourage them to leave the labour force. Several countries, from Spain to Sweden, have temporarily cut social insurance contributions to reduce labour costs.

A broader group including Austria, Denmark, France, Germany, Hungary, Italy and Spain, are encouraging firms to shorten work weeks rather than lay people off, by topping up the pay of workers on short hours. Germany, for instance, has long had a scheme that covers 60% of the gap between shorter hours and a full-time wage for up to six months. The government recently simplified the required paperwork, cut social-insurance contributions for affected workers, and extended the scheme’s maximum length to 18 months.

Britain has taken a different tack. Rather than intervening to keep people in their existing jobs, it has focused on deterring long-term joblessness with a package of subsidies to encourage employers to hire, and train, people who have been out of work for more than six months.

Of all rich-country governments, Japan’s has flailed the most. Forced to confront the ugly reality of its labour market, it is trying a mixture of policies. Last year it proposed tax incentives for companies to turn temps into regular employees—a futile effort when profits are scarce and jobs being slashed. The agriculture ministry suggested sending the jobless to the hinterland to work on farms and fisheries. As Naohiro Yashiro, an economist at the International Christian University in Tokyo, puts it: “Although temporary and part-time workers are everywhere in Japan, they are thought to be a threat to employment practices and—like terrorists—have to be contained.”

Recently, a more ambitious strategy has emerged. The government is considering shortening the minimum work period for eligibility to jobless benefits. It is providing newly laid-off workers with six-month loans for housing and living expenses. It is paying small-business owners to allow fired staff to remain in company dorms. It is subsidising the salaries of workers on mandatory leave. It is paying firms for rehiring laid-off staff, and offering grants to anyone willing to start a new business.

Whether these policies will be enough depends on how the downturn progresses. For by and large they are sticking-plasters, applied in the hope that the recession will soon be over and the industrial restructuring that follows will be modest. Subsidising shorter working weeks, for instance, props up demand today, but impedes long-term reordering. The inequities of a dual labour market will become more glaring the higher unemployment rises. Politicians seem to be hoping for the best. Given the speed at which their economies are deteriorating, they would do better to plan for the worst.

[Zkribbler]

You're right, it's about time we restore higher tax rates on the super-rich, and start eliminating loop-holes.

If only that alone would close the fiscal deficit...

True. A lot of people think that if we just reverse Bush's policies, we'll get back to Clinton's days of budget surplus. It's not going to happen.

The government has been borrowing like crazy ever since Bill & Hillary's pick-up drove off down the turnpike, so we have much higher interest payments. Medicare and Social Security need fixes, and when coupled paying for universal health insurance, middle-class taxes will have to go up, not just the taxes on the uber-rich.

[Victor Galis]

True. A lot of people think that if we just reverse Bush's policies, we'll get back to Clinton's days of budget surplus. It's not going to happen.

The government has been borrowing like crazy ever since Bill & Hillary's pick-up drove off down the turnpike, so we have much higher interest payments. Medicare and Social Security need fixes, and when coupled paying for universal health insurance, middle-class taxes will have to go up, not just the taxes on the uber-rich.

Oh that's true, but we don't technically need to run surpluses. We just need the debt to increase at the same rate as nominal GDP for the real proportional debt burden to be the same.

[chequita guevara]

If Obama doesn't bite the bullet and Nationalize the Banks ala the Swedish model and defuse the CDS bomb I think we will be looking at GDII.

Great Depression Four. There were two depressions in the 19th Century that were also called the "Great Depression." Each of the three was worse than the one preceded it. The Panic of 1837 and the Panic of 1973 both led to, what were termed at the time, Great Depressions.

BTW, if that's the way were are headed, there is nothing the government can do to stop it. All that can be done is to ameliorate the affects so that tens of millions don't become homeless and millions die. . . although, in the neo-colonial world, millions are already dying.