Friday, May 19, 2006

Krugman: 'The Start of a Serious Economic Slowdown'

Unfortunately, I don't think Krugman is Henny Penny here; he's right. What was that phrase Alan Greenspan used? "Irrational exuberance" must eventually give in to the pressures of reality. Even if President La-la-la-I-Can't-Hear-You won't admit it. When has he ever had any grip on reality? Right.

Paul Krugman, NYTimes: Coming Down to Earth (TimesSelect)

As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.

Now that game seems to be coming to an end. We're going to have to find other ways to make a living — in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.

Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what's happening in the housing market is "a very orderly and moderate kind of cooling." Maybe he's right. But if he isn't, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.

The whole article: Ed Strong

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