Some smart politician is going to realize that

1) Radio is flooded with ads for credit card debtors to "shed" their debt

2) Most voters pay their bills and resent these ads.

Not a pivot at all. Krugman's not being hysterical, he's merely transmitting the near-universal view of the financial community that this is a sh*tstorm the likes of which we haven't seen before. I know that people who don't move in those circles or pay close attention to the financial markets haven't been up on this, but the signs are very clear:

-- Carlyle Group's funding arm couldn't make a margin call the other day. CARLYLE GROUP. uh-oh

-- Citigroup's head of consumer lending said the biggest and most powerful consumer bank on the planet was going to pull back, immediately, from every single area of lending in the US. Not just mortgages but also cards, auto loans, every type of consumer loan. CITIGROUP.

-- as with consumer finance, bank-to-bank lending is practically frozen. When banks stop lending to other banks, you know you've got a major, systemic crisis.

-- Bernanke slashes rates, and the markets yawn. In fact, in the consumer area, they've done the opposite of what Bernanke expected them to do, ie mortgage rates have spiked. Oops.

-- the dollar is in free fall, and commodity prices continue to soar, which means the downward spiral is likely to continue for some time.

-- due to all of the above, we're in a very difficult position in which neither raising rates nor lowering them offers any way out. If we keep lowering rates, the dollar will slide even further. If we raise rates, the recession will worsen.

I've never seen anything like this. Frankly, the current economic team in Washington is clueless as to how to stop this rout. Krugman for once is not exaggerating in the slightest.

If Obama wants to get some mojo and show that he really does have a first-rate intellect and superior leadership ability, then he would get all over this crisis, explain it clearly and what it means for the nation, and offer some innovative and well thought-out solutions.

Batter up.

Josh, you need to get out more.  I don't believe Krugman was referring to Obama (hope) and Hillary (a plan).  Or was he?  You are making me paranoid!

Everybody senior Director I've talked too, in major global companies based here, have all said the same thing: there is only one way out and it's to raise interest rates, quickly and by at least 2 full points. A Volcker in the Fed is required now. This will, eventually, clear out the bad paper and leave a solid (if much diminshed base) to move forward with. It was done in the 80's to a lesser extent and it's required now.

And the people telling me this work for those financial houses that will suffer or go under in that scenario. The Fed has lost its way and has even cryptically hinted that "financial innovation should not come before stability", that's a polite way of saying regulation is required to put some transparency back into the markets.

tep, while I agree with your assessment, what little I've heard HRC would do would make matters worse.  What I take she wants is to freeze mortgage terms for I think 5 years.  That would have the effect of really causing turmoil in the mortgage business I thought, and have the extra bonus of infuriating people like me that bought what they could afford and stupidly make payments on time every month for years.  Obama hasn't proposed anything as dangerous at HRC has as far as I can tell.

I think the only way out of this mess is to let it play out and let the public see what the "free market" really means.  They wanted gov't off their backs so, as Ray Davies said, "give the people what they want".

Yeah, Patashnik is young and this stuff probably sails over his head... Krugman actually did predict that the Bush tax cuts would have no measurable effect on domestic demand, and he was right, so we incurred a really big debt for no really good reason (it's ok to borrow/spend money Patashnik, it's just not ok to spend/borrow money on 'stupid' things like tax cuts for rich people and poorly chosen and executed wars).

There are only 3 prices that matter to an American, the price of oil, the price of the dollar, and the price of credit.

Slowly changing prices, even prices that change slowly in the 'wrong' direction (dollar and oil, sorta slow... so far) are not necessarily terrible things, in fact, if they move slowly enough, they can allow for re-adjustment.

Rapidly changing prices are a BAD thing. And the credit markets HAVE seized up.

You combine arrested credit markets with the falling dollar and rising oil prices with the fact that 4%-8% of the workforce is about to lose their jobs (these are all the people employed in 'creating houses'), you've got a HUGE problem.

Patashnik, 'recession' is only 1/4th of the story. Sure, like 2001, we've probably produced too many goods and we have to wait until inventories exhaust.... if that were the only problem, we'd be fine, a little fiscal stimulus, some unemployment checks, and in 9 months, we'd be right as rain.

The story isn't the recession, the story is the economic realignment in which America will emerge as a considerably poorer nation than she thought.

Right now, Bernanke's decided to play chicken with the Chinese (he's right, they'll keep buying dollars) and has decided that re-starting the credit markets is job #1, even if that trashes our currency and sets back standards of living.

This is debatable, but I'm glad he didn't do it merely because Wall St. told him, those greedy selfish assholes at Bear Stearns and Merrill were SCREAMING for him to do it for 6 months.

"I know, I know, he's predicted nine of the last zero recessions or whatever, but that doesn't mean he's wrong this time!"

Actually, the Krugman *I* read is very careful *not* to predict recessions; real economists are careful about making short-term predictions.  Only idiots think economists are supposed to be soothsayers, and economists at Krugman's level aren't idiots.  You'll notice also that he doesn't "predict" anytihng here either; he simply reports what's happening, which is alarming enough.  And if you look closely at the "false predictions" his detractors love to peddle, you'll find that they're not "predictions" at all, but observations that the economy has big *current* problems that could *well* get bigger if something isn't done.  Stating such things is, of course, scandalous to the mindless souls who basically think the great enemy of perpetual boom are those who point out the danger signals.  Such people are the bubble-blowers' best friends.