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Deflation Fears: U.S. as Japan?

High unemployment and low consumer confidence. Is the U.S. looking at a Japan-style meltdown?

Left: Shoppers look around at a drugstore in Tokyo, 2010. Right: A liquor store in New Hope Pa., 2010. (AP Photos)

Big losses on Wall Street yesterday, and tough economic news all over. U.S. exports, down. Home foreclosures, up. 

U.S. economic growth is drifting down and down. The Fed may be running out of levers to pull. The “we’re coming back” theme of a few months ago is giving way to new fear of economic stumbling and tumbling.  And never mind inflation for the moment. 

Some savvy economists and investors are worried about deflation – prices and wages going down. 

Guests:

David Wessel, economics editor at the Wall Street Journal.

Frederic Mishkin, professor of banking and financial institutions at Columbia’s Graduate School of Business. From 2006 to 2008, he was a member of the Board of Governors for the Federal Reserve System.

David Resler, chief U.S. economist at tbe Nomura Group, a global investment firm founded in Japan.

Dave Scott, chief investment officer at Sunrise Advisors, a financial planning and asset management firm based in Leawood, Kansas.

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  • twenty-niner

    US final demand continues to shrink as the consumer continues to deleverage, as evidenced by M3 shrinking at an estimated 6% annual rate (the Fed stopped reporting M3 in 2006), which is highly deflationary. The Fed is trying to head this off with another round of QE, which is like squeezing a balloon – no one can predict what’s going to get shrunk and what’s going to get bulged. The dollar is at a 15-year low against the yen, and gold is still hovering around $1200.00, but other assets not so directly tied to the value of the currency are dropping like a rock.

    While QE may free up more capital in the banking system, the money never really filters down to Main Street and just gets used as poker chips in the currency and equity markets, causing other bubbles and unpredictable market swings.

    The combination of mass deleveraging, currency destruction, and profligate deficit spending may produce an outcome that no will have predicted, nor wanted.

  • bob

    It doesn’t take a panel of experts to figure this out. The average American understands this because we have been living this for years.

    Outsourcing of labor is the cause. Get cheap labor, set prices lower, get more cheap labor, set prices even lower, outsource engineering jobs, set prices even lower, and the American workers dig ditches for minimum wage if we can even get a job doing that now.

    Race to the bottom. Why do you need these so-called experts?

    Labor outsourcing and greed and I’m willing to bet not one of the guests on this show will even mention labor outsourcing. Why is this?

  • Brandstad

    Since the Obama administration is doing the same failed policies of FDR in the Great depression it doesn’t surprise me. We are now printing funny money, buying our own debt to hide the fact that no one wan’t to buy it at this interest rate, and our DEBT to GDP ratio is skyrocketing and we will soon surpass the levels of Greece, which everyone agrees is a failed state.

    If you look to history around the world, once the economy starts to rebound, the government will have to try to suck back in 1/2 of the money supply and to do so interest rates will skyrocket and the rebounding economy will fall back to stagnation.

    During this next year, the federal government will continue to bailout Union pensions and state and local government in 2k page bills that no one reads and in the next 5 years the fed government will officially be bankrupt because of the folly… at that point the Obama Administration will have succeeded and we will have no choice but to be bailed out by an international organization and we will then be able to redistribute wealth from america to poorer countries easier.

  • TomK

    Since we started following far-right reaganomics, we’ve been moving towards a 2-tier society of super-rich and peons. With Obama acting like a Mitt Romney republican and refusing to take bold steps to stimulate the economy, we could very well sink into deflation and depression, and greater inequality. The insanity of historically low taxes on the top 1% leads to nothing but the aristocrats hoarding more $, which do not circulate through the system. This is NOT the time to worry about the deficit, especially when the gvt can borrow at 1% interest or so. The “deficit hawks” care about nothing but making sure that the top 1% will not have to pay their fair share of our society. The current tax rates at the top are unsustainable! I want a middle class society, not an aristocracy.

    Spend! Fund alt energy research, high speed rail, etc. USA infrastructure doesn’t have to be 3′rd world.

  • CHRIS M

    Wow, it is amazing how delusional some folks can be. Keep believing the slime Faux News oozes out and someday, maybe just maybe, the world will go back to being flat.

  • John

    Obama needs to listen to Krugman not Geitner.

  • peter

    Our economy is 70% consumer driven but consumers are indebted up to their crowns. Americans need to deleverage but contrarily they need to spend in order for the economy to grow. We’re generating a yearly current account deficit approaching 5% of the economy which means we need to grow 5% just to stay ahead. But we’ve deindustrialized to the extent that we can no longer make the products we need with U.S labor as already posted by Bob. In short we’re in a mess caused by both political parties over the last 30 years and it may take as long to get out of it.

  • JP

    Why not do a show about all of the economists who were predicting all of this would inevitably happen, just as it is now unfolding, way back during the early Bush years, because of Republican and Bush policies.

    Bush was content that ALL OF THE JOB GROWTH during his administration be retail and service sector jobs, SUPPORTED ONLY BY ILLUSIONARY WEALTH, such as what Greenspan called the “irrational exuberance” bubbling of the stock market and ever-escalating home prices.

    Nearly all of the wealth of the Bush years was paper fantasy, and Bush was content that ALL JOB GROWTH during his tenure be non-productive, while all of America’s production capacity was moved overseas.

    Now that all the illusionary wealth has evaporated back into the ether from where it came, all of those retail and service sector jobs have likewise disappeared, and there are NO REAL, PRODUCTIVE JOBS to go back to!

    Thanks Bush and Republicans for screwing Americans out of REAL JOBS AND REAL WEALTH!!!

    America already hada lost decade! The years Bush and the Republicans were in power!

    Now America has to find jobs for nearly the entire population added during the Republican years, as well as all of the population that has been added since Republicans screwed the American economy! THAT’S WHY UNEMPLOYMENT IS AS HIGH AS IT IS!!!

    The wealth simply doesn’t exist anymore to provide everyone with jobs, as NO REAL WEALTH WAS CREATED DURING THE BUSH YEARS, NOR WERE ANY REAL JOBS CREATED.

    Republicans destroyed the American economy in a far worse way than the conservative, corporate, mainstream media has ever let on, and only now are Americans waking up to the reality of what Republican policies have wrought!

  • JP

    The sad thing is that plenty of people were predicting the ruination of America by Republican policies long ago, but America didn’t heed the warnings as long as Republicans could maintain the ILLUSION OF WEALTH AND WELL-BEING.

  • Darren

    What is wrong with deflation? If we are only deflating back to the norm. The last decade has been artificially inflated by Greenspan’s cheap money. To avoid a lost couple of decades like Japan, the government should stop propping up the market and let the deflation happens as quickly as possible. If people don’t like the pain, we shouldn’t have supported the cheap money policy to begin with.

    The problem we have now is incompetent/corrupt economists/ financial “experts”. They don’t see the extremely obvious housing bubble. They think unemployment is a lagging indicator and we can spend our way our of recession. They don’t know what is the cause of the problem but pretended to have a solution.

    Time has changed! Unemployment is a lagging indicator when US is still producing goods and innovations. We have become a consumer driven economy, so how can unemployment still be a “lagging indicator”.

    Prices has skyrocket in the last decade. Prices of food, oil, housing, healthcare…. Deflation will return prices back to the norm and spur consumption. People who embrace globalization has to accept the outcome of deflation. Lower wages might actually help in bringing the jobs back to the US.

  • Steve V

    Several years ago I was watching a program in which homeowners were having their property valued for a home equity loan. They were told they had $ 65,000.00 in equity to which the wife responded “Now we can update the kitchen”. Her husbands response was a classic, something that told me this wasn’t going to end well. “and we can buy those jet skies we’ve always wanted”. This was not an isolated incident, it was all to commen. I’d like to think we’ve learned our lesson but………

  • Brandstad

    If it wasn’t so sad it would be funny, watching the clip of the crook Charlie Rangel in 2005 or 06 testifying that the housing market is not becoming a bubble ready to pop and nothing should changed in government policy to prevent the housing market from becoming a bubble.

    You could say that was a turning point that if Rangel would have saw and acted on what many economists saw and followed the republican party’s lead, this disaster could have been avoided or at the least, reduced greatly.

  • CHRIS M

    Oh yeah, The Bush White House push for a “ownership society” didn’t have a thing to do with it.

  • Brandstad

    It is time our government realizes that not everyone should own a home. If you can’t pay a standard 30yr mortgage with 20% down, you should not own or you should buy a cheaper house.

    If they had realized this 5 years ago the government would not have allowed the crazy 40 & 50 year mortgages, interest only loans, no money down, no income verification….

  • Abel

    First off, it should be made clear that the Fed is a corporation owned by the banking industry and as such serves their interests, not the supposed mission of low unemployment and stable prices. The Federal Reserve will not allow deflation to occur. Deflation would destroy the financial world because the money would not be their for the banks to collect the interest they are owed. This would reveal the utter insolvency of the financial industry.

  • JP

    Brandstad,

    you’re clueless.

    Do yourself and everyone else a favor, and listen to the following award-winning show about the REAl REASON people bought homes they couldn’t afford.

    It’s from a This American Life episode called “The Giant Pool of Money,” and it will only take 55 minutes of your time, but it will obviously save you lots of pointless typing in this forum alone:

    http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money

  • EIO Boston

    All the experts and theories are great, but the race to get the cheapest labor is dragging the whole world down to the lowest common denominator. The poorer people are the less they can afford.You can not buy a $200k house if you make $16,000 a year as opposed to your last job a few year ago when you made $50,000 a year.

  • Jim

    I am quite hesitant that the US is going to a complete deflation. the key word is “complete”. look, people still need to pay for high cost in food. recent crop growth from the worldover is not encouraging. we have americans still going to high cost sports event. What i do see is the extreme divide between the have and the have not. Lastly, the US is an importing nation unlike Japan, which relies heavily on exports.

  • Peter

    Please explain the historical effect of inflation on Fed policy, where lenders did not want to get repaid in inflated dollars.

  • Webb Nichols

    The 500 pound Gorilla in the closet. If the United states wants to compete in the world market with its goods, the cost of goods and the expected Return on Investment must be reduced which means lower wages across the board including workers, managers and executives.

    respectfully,

    Webb Nichols

  • Brandstad

    TOM,

    US consumer credit has been declining for the last 12 months… this has been the longest stretch seen since the statistic was recorded in the 1960′s.

    While this is good for the individual, it kills the economy and pushes the system towards deflation since consumers are putting off purchases now to get a better deal in the future when they don’t have to borrow to purchase the product.

  • Sasha Drugikh

    Don’t mean to sound naive here, but isn’t inflation essentially a hidden tax on the Have-Nots? Who profits when a given investment grows in nominal value? From a social welfare point of view, isn’t VERY low inflation a good thing?

  • Kevin Minnick

    Deflation? Healthcare is a huge part of the economy, seems unlikely those costs would deflate. Wouldn’t that mitigate deflation elsewhere?

  • Brandstad

    JP,

    You are clueless.

    You should not comment unless you have done research which constitutes looking at multiple sources and diverse ideas.

    http://biggovernment.com/mikeflynn/2010/03/10/the-little-fed-report-that-could-and-did-create-a-housing-bubble/

  • Ellen Dibble

    peter at 9:28, hopefully all that consumer debt was spent doing what the government should be doing per TomK at 9:20: “Spend! Fund alt energy research, high speed rail, etc. USA infrastructure doesn’t have to be 3′rd world.”
    Those of us trying to invest/save since about 1999 discovered that to invest was to be ripped off; better to start your own future.
    I’m sure not waiting for the government or private corporate America to save us. In 20 years, health insurance goes up, up, up, and my rate of pay slumps.
    One reason for consumer debt is the prospect that inflation is coming; get ready to dig in.
    The national digging-in, though, takes political will and savvy. I’m waiting.

  • Ben

    Com’on, folks: Deflation isn’t a pricing phenomenon. It’s a contraction in the supply of money and credit, relative to available goods and services. Falling prices are a lagging indicator, and no, they DO NOT make things more affordable because your wages will likely have fallen also.

    Two scenarios: You make $100k/yr, and gas is $4/gal.

    You’re unemployed and gas is $2/gal.

    In which scenario is gas more affordable?

  • JP

    It is the republican’s fault and it always is!

  • JP

    I’ll agree with that, other JP who likes to impersonate me!

  • stav
  • yar

    How much of the boom and bust of an economy is related to the average age of a countries workforce? The economy is trading work over time. Money is the marker of that trade. Inflation and deflation is the market adjustment for the trade. I expect the only deflation will be the value of the US dollar. We can have a US depression and inflation at the same time as part of a world economy.

  • BHA

    We already have deflation. No pay raises but the cost of medical insurance goes up.

  • Ellen Dibble

    Maria saying 40 million in US have lost jobs reminds me of 40 million Pakistanis displaced (so far) by floods, and I’m thinking it’s too bad we cede to China and Southeast Asia the making of all the cheap goods. My reasoning is that the developing world is the next great market — not the Americans who are getting squeezed something dreadful, as Maria stated.
    So we should be manufacturing not just high end gizmos but cheap things to appeal to the developing world — my opinion.

  • jim thompson fort mill,sc

    Tom:

    The major problem with de-flation is the expectation of lowering prices. Consumers hold off spending in anticipation of prices dropping further.

    We have this cycle every holiday season. The retailers deal with customer’s expectations of even better prices throughout the Christmas holiday season.

    If Americans want jobs here then look at where things are made. Spend more for American products. They won’t do it.

    Some folks didn’t mind when factories and mills m oved to the US Southland for cheap non-union wages. You reap what you sow.

    I tell the President, keep investing in America!

  • Donald B

    @Webb Nichols
    The Germans maintain high labor wages and a level of exports proportionally higher than us (or near so, I believe).

  • http://www.electricdesigner.com Shawn

    There is simply no way you can let companies out source by the millions and not expect there to be a loss of jobs in the US. These jobs are no longer manufacturing jobs, they are all kinds of jobs. The only safe jobs are the ones that are service based and have to have a live body…like an exterminator.

    US job loss leads to tax loss both at the state and federal level.

    Why does not one talk about reversing the massive hemorraging of jobs through out-sourcing?

  • Ralph

    A major problem here is that too many people and correspondingly too many politicians believe that ALL governments should be run as a business. While this is certainly the case for local governments and for service aspects of the federal government, it is absolutely not the case for the economic policies/aspects of a national (federal) government.

  • Josh

    Deflation is bad because it kills consumption – why would anyone buy anything today when it’ll be cheaper tomorrow? (Houses, Cars, Refrigerators)

    Deflation is a vicious cycle because the less people buy, the less demand there is, and the more prices go down. Once it starts, it’s very tough to stop which is why the fed needs to continue being vigilant against it.

  • Brandstad

    Fair trade not Free Trade.

    Fair trade is free trade among countries that have similar EPA standards, work force protections, and cost of living.

    Free Trade promotes semi-slave labor in low cost countries.

  • JP

    Brandstad,

    again, you’re clueless.

    Having 8,000 tucked away in your employer sponsored 401k hardly means one is “invested in the stock market,” and it hardly means the typical American has anything to lose or gain by stocks moving up or down.

    Where’d you get that much vaunted college degree, The University of Phoenix Online?

    None of your posts exhibit any real understanding of the issues on which you comment.

  • Donald B

    @Brandstad
    Writing the rules to benefit the rich does very little for companies that employ people; what it does is give the rich predators license to wreck the economy and walk off with money, just like the “nobility” did in the Middle Ages (and the tribal leaders in today’s Middle East).

    What did the private equity people do for the Simmons Bedding Company?

  • Anthony England

    A listener wondered whether outsourcing jobs in the US might lead to deflation in the US. One of the economists dismissed that question with an almost religious certainty, repeating a simplistic rule about how more efficiency always leads to a bigger economic pie. In my opinion, that was a smug answer, bordering on flippant. It is not that simple.

  • Ellen Dibble

    Anthony, I agree. It is basic capitalist economic doctrine that the most free and open and broadest market produces the biggest pie. Mathematically, it can be proven that after the time necessary for adjustments everyone, every country, ends up providing what they most efficiently can provide.
    We see the limitations of this mathematical certainty. In the USA, we are not the cheapest and most efficient source in many instances. Bye-bye American hegemony. Bye-bye American middle class, at any rate.
    Or what?

  • Donald B

    A few years ago, Texas Instruments was strongly considering offshoring a chip manufacturing plant until they called in “green” engineers and industrial architects to consider a new type of building for their plant. The new design was so much more efficient, it was built in Texas and saved the workers jobs AND the company money. But most companies go with the “conventional wisdom” and offshore. But the major loss of manufacturing jobs is due to automation. But it takes workers with higher education and skills to work there.

    The other cost is energy efficiency; Manufacturing CEOs consider it easier to reduce worker pay than to increase the efficiency of the plant. One company refused to allow a plant operator to implement a third efficiency improvement after two previous ones had increased the plant’s profits by more than predicted. You can speculate on why, but probably because someone was being embarrassed.

  • twenty-niner

    “Once it starts, it’s very tough to stop which is why the fed needs to continue being vigilant against it.”

    Vigilant how? More quantitative easing? That may free up some capital, but the primary dealers just use it for quant trading. There’s no internet or housing bubble to fund, so the money just flows into treasuries, out of treasuries into equities, out of equities and into currencies, and then back into treasuries, all driven by fancy trading algorithms.

  • twenty-niner

    “Thanks Bush and Republicans for screwing Americans out of REAL JOBS AND REAL WEALTH!!!”

    Come on. Both parties were complicit in the housing bubble as well as the mass out-sourcing over the last decade. Clinton repealed Glass–Steagall, signed NAFTA, and gave China MFN. Barney Frank blocked an effort to constrain Fannie and Freddie, and the government in general has over-promoted home ownership through the tax code, GSEs, and endless jaw boning.

  • TomK

    Brandstad, Rangel was a minority congressman in the GoP controlled house in 2005-2006. Do you really not know that the majority rules the congress? I suggest you listen to the GoP reps complaining about how that mean Nancy Pelosi ignores them.

    There may be clear signs of ideological extremism than pointing the finger at a powerless minority member for a crash that followed years of reaganomics, but I can’t think of one.

    Again: reaganomics class warfare has transferred the wealth of our former middle class society to the elite. To keep the victims happy, the right engineered the housing bubble. Wages remained flat, but the house served as ATM. Now the bubble is burst, the jobs are gone courtesy of “free trade”, and the middle class has been stripped of what was once it’s biggest asset, home equity. Thanks a lot, reagan, bush, gramm, gingrich, delay, hastert, greenspan, clinton, etc. Yes, clinton drank the kool-aid, big time. Tax cuts and deregulation are bad for 99% of Americans, and plenty of Dems have supported that evil policy.

  • JP

    Republicans, most notable Phil Gramm, repealed Glass-Steagal by enacting the Gramm–Leach–Bliley Act… not Clinton.

    Yes, Clinton signed the Bill after passage, but my take is that he was pressured, bullied, and likely blackmailed into complete coalescence.

    … still, I’ll give you that Clinton should have vetoed the Bill, which was very likely the primary link in events leading to our current crisis.

    As to NAFTA, I’m no fan either, but no one has been arguing that all of America’s jobs are being dissappeared to Brazil or Costa Rica… last I checked, people were worried about outsourcing to Asia. Blaming NAFTA is quite off-base.

  • Alex

    “You could say that was a turning point that if Rangel would have saw and acted on what many economists saw and followed the republican party’s lead, this disaster could have been avoided or at the least, reduced greatly.”

    This is not credible in the least. Blaming people like Rangel or Barnie Frank who were in the minority throughout late 90s and first half of 2000s does not hold water. The housing bubble occurred almost entirely in the first half of 2000 when all the power in the country was in the hands of one party. Frank and Rangel were not members of that party.

  • JP

    … and it’s fantasy that Fanny/Freddie were the primary cause of the mortgage crisis.

    Listen to the TAL show that I provided Brandstad in the link above… that’s a good place to start a real understanding of how the mortgage crisis came about.

    Fan/Fred are now as huge a problem as they are mostly because they’re being used to take up all of the slack from the entire mortgage fiasco… a big mistake that everyone, including Dems are now letting happen, but not the cause of the initial crisis.

  • Brandstad

    In 2006 The Democrats won the election and took the house at which point Charlie Wrangle became a majority member and since he has been one of the most powerful democrat legislators for several years, he became the head of the Ways and Means Committee. If you don’t know he was now the holder of one of the most powerful posts in all of Congress.

    If Charlie wasn’t corrupt and clueless at this point he could have fixed a large part of the problem. But if he wasn’t corrupt and clueless, Charlie could have put together bipartisan legislation to fix the problem much earlier given his position in the Democrat party.

    http://en.wikipedia.org/wiki/Charles_B._Rangel#Political_positions

    There is nothing extreme about this, it is only the facts.

  • Brandstad

    JP,

    So if Fanny/Freddie were not in existence, who would have bought the junk mortgages?

    Did private banks or Fanny/Freddie start buying the junk mortgages and lowering lending standards? let me tell you …. Fanny/Freddie

    The political parties have both allowed Fanny/Freddie to become to big and political. They are now holding 80% of the home mortgages in the US.

  • Alex

    “… and it’s fantasy that Fanny/Freddie were the primary cause of the mortgage crisis.”

    I agree. Freddie and Fannie were all but also-runs in the securitization business. They had thought they had to keep up with the Wall Street. In that respect, they screwed up, but if I were to pick one responsible party it would be the Investment Banks (Merrill Lynch, Morgan Stanley, Lehman, Goldman Sachs and Bear Stearns).

  • Alex

    “In 2006 The Democrats won the election and took the house at which point Charlie Wrangle became a majority member”

    Yeah, but by then the housing bubble was already at its very peak. Dems took office in january 2007 and the bubble burst sometime later that year. I would be more interested in knowing what the people who held real power in the early 2000s were doing.

  • jeffe

    In the past two weeks a pothole on I95 stooped traffic for two days going into the Boston area and another bridge in the Boston area has huge chunks of concrete falling off of it. From what I have read about this there is enough infrastructure work needed on this country to supply good solid well paid jobs for the next 10 to 15 years. A lot of these jobs can start up right away if funds are made available. If you ask me we need a Marshall plan for infrastructure in the country.

    The other area that apparently needs some tweaking is the precision manufacturing of high end machine parts. There is a serious shortage of people to fill these jobs in this country. We need good manufacturing jobs like this and we should be looking into training people to them.

  • jeffe

    Some people here should do their homework before passing the tired old right wing scape goat of Fannie and Freddie.

    Lehman Brothers for instance was responsible for the loss of billions in the municipal bond market. They destroyed state pensions and went bankrupt for all the crap they did in the derivatives market. They were known as the “pigs of the street”. This company alone did more damage than Fannie or Freddie. Add to that AIG and Goldman Sacs as well as all the other players and you have one huge stinking pot of financial disaster.

    The thing that’s scary is nothing has really changed and they are all at it again!

  • JP

    They’re not interested in doing their homework or learning the facts,
    they’re only interested in perpetuating the narrative they heard from Glen Beck.

  • Ed

    Who thinks a high speed rail is going to solve our problems? Must be a liberal. They have no clue that every country that has a high speed rail loses money on it. they have to subsidize it and it’s only run by a bunch of governemnt hacks which is what Obama has made of this country so far. He’s a joke of a president. Worst in the history of our country.

  • jeffe

    I’m not talking about something like a high speed rail.
    I’m talking about roads and bridges, the energy grid and other infrastructure projects that we need to do now.
    We have bridges that have not had anything done to them in decades here in Massachusetts and some that are 40 to 50 years old. We have damns all over the place that need a lot work. We have water mains that in some cases are over 100 years old and in desperate need of being replaced or repaired.

    There is enough work to keep a lot people working for years to come. From engineers on down to ditch diggers and all the services that go along with this kind of work.

    Anyone in my view who is against infrastructure projects is a fool in my view. We can’t compete without good roads. We can’t become more energy efficient with antiquated power lines and water systems.

    Ed are you going to demonize this kind of work?
    After all conservatives drive on roads, use electricity and drink water, do they not?

  • jeffe

    I suggest watching this interview with Bernard Schwartz, chairman and CEO of BLS Investments, LLC.

    He has some very sound ideas which backup my comments about infrastructure projects as a good investment and a sound way to get a lot of people back to work.
    The operative word is Investment, not stimulus.

    http://www.charlierose.com/view/interview/11152

  • marc

    I don’t trust the number, but a show on NPR said that Freddie and Fannie held 1.5 trillion in mortgage debt. If a significant percentage of that, say anything over 10% is potentially in default and another 10% under water, that’s easily enough to send the stock market into a swan dive, banks to stop lending and companies to start cutting back. I saw the videos of democrats saying there was no problem while republicans said both were in trouble and needed to be regulated more. Course, democrats were in the majority at the time and Bush was president. Just by the facts I know of, Branstad makes a strong point, and shouldn’t so easily be dismissed.

    However, the Morgan Stanleys, Lehmans and the rest also played their part and are probably crooks. And that our current president and Congress (both sides) seem to be bought by them and the unions, says it’s unlikely for anything to change. This is particularly true when we’re played for a bunch of saps and spend our time replaying the party lines about how simply awful the banks are, or the unions are or whoever else we’re taught to demonize. And then of course, we put the same people in office and fall over ourselves to give them more money of ours to spend. Do you have any idea of the massive waste in these public construction projects? I don’t disagree that the banks and all the rest are large parts of the problem and that some infra work has to be done. I’m just amazed that we so easily fall in line with what the source of those problems wants us to do.

  • Ellen Dibble

    Remember how Obama was going to run without taking any special interest money? Wait, wait, just the reverse: he was going to campaign using internet contributions and be a man of the people. He was not going to accept government dollars for campaigning.
    Something like that. But it seems to me he sold out to special interests at some point, at about the point he took government money. What’s that all about? He got clear of Hillary Clinton’s challenge and dissolved into Wall Street, insurers, etc., etc.?
    Ed, we have been subsidizing interstate highways for many decades. We could try to get people to get away from oil and its devilish consequences, international and planetary.

  • jeffe

    So marc, if you don’t think public works projects are a good idea what do you suggest? Doing nothing until bridges fall down? We need to put people back to work, period.
    Waste and mismanagement is a real issue as the Big Dig has shown. However after that bridge collapsed in Saint Paul MN it has been rebuilt on time and in budget. It can be done, sorry we have no choice if you want to take this issue seriously.

  • tweny-niner

    “… still, I’ll give you that Clinton should have vetoed the Bill, which was very likely the primary link in events leading to our current crisis.”

    I’m not sure if that was the root cause. Finance types are very adept at funneling cheap money into the next bubble, while side-stepping regulators. I believe the ultimate fuel was the Fed’s printing press, which went into over-drive twice. Once in ’98 with the collapse of LTCM, and again in 2001 upon the collapse of the internet bubble and 9/11. Once the money is printed, it becomes very hard to control.

  • Marc

    People are so sloppy in their reading.

    I said:

    “I don’t disagree that the banks and all the rest are large parts of the problem and that some infra work has to be done. I’m just amazed that we so easily fall in line with what the source of those problems wants us to do.”

  • TomK

    JP, imo Clinton drank the voodoo econ kool-aid. Granted, he wasn’t pushing it. The thrust came from the usual suspects from “tax cuts and deregulation” fantasy land. He sure went along with it, however, as do plenty of Dems right now.

    Watching the right point fingers at Rangel and Frank is really bizarre, since minority congressmen are powerless. They won’t admit that they were in charge as the economy was being destroyed.

    28 years of nonsense like tax cuts that pay for themselves, self-regulating markets, “the free market always finds the best solution (mccain)” etc etc caused the crash. The right should apologize and shut up, as they have proven that they are totally incompetent at anything but enriching the top 1%. Instead they blame people who had no power to do anything.

  • jeffe

    Marc I read what you posted. You seem to dismiss the problems of our infrastructure as something that is not a real pressing problem. It is a pressing problem and it’s only going to get worse.

    The banks and wall street played a major role in the financial downturn, in fact they created it.
    If we had good regulations in place that kept people from making bad decisions by taking out equity loans way beyond their means or buying properties they could afford in the first place a lot of this mess would have been avoided.

    If you want proof look to Canada which has large banks but did not have all the speculative BS because of strict regulations in this area. The Canadians have weathered this rescission pretty well compared to us.

  • William

    It will be interesting to how the economy and job market will react next year when President Obama’s massive tax increase goes through.

  • Zeno

    Is there a bottom to deflation on imported goods? Since we import most of our market economy stuff from China, at some point they are not going to give the stuff away. Even China can’t sell a 30in flat screen TV for $50.

    To reach parity of income vs labor with manufacturing giants like China, an American making $8K per year would have to be “middle class”.

  • david

    I will continue to follow the economist I learned from years ago. Even after being dead for several years, he is still batting around 1000. He even predicted this mess nearly 15 years ago.
    I also will amuse myself at the liberal/progressives as they blame Bush and the Repubs. for this mess.
    One day, maybe before it is to late to turn things around, somebody will give Obama and the Dems. some much needed credit for driving not the car but the bus off the cliff.
    Get out of debt, stay out of debt and save all you can.
    If goverholics can ever learn to wean themselves off the entitlement mentality, maybe this nation can recover.

  • Alex

    “If goverholics can ever learn to wean themselves off the entitlement mentality, maybe this nation can recover.”

    No kidding. I believe Republicans have held the White House for the greater part of the period since WWII than Democrats. Where is the small government?

  • Bush’s fault

    “If we had good regulations in place that kept people from making bad decisions”

    Now HERE is a real liberal… HA!

    “If we had good regulations in place that kept people from making bad decisions by taking out equity loans way beyond their means or buying properties they could afford in the first place a lot of this mess would have been avoided.”

    In other words, people are stupid and need government to think for them…one of our resident liberals in spite of himself has spoken the truth of his position…it wasn’t BUSH..it wasn’t the Republicans or the Democrats….the PEOPLE, the electorate, of this country who created our situation by vote and behavior and will now pay the consequences. All else is irrelevant.

    God bless you

  • Cate

    Tom,
    QUESTION: Since it waas some time after the recession began before economists were able to recognize it, can we assume that we might have deflation now and the diagnosis will come later? We certainly see downward pressure on wages and prices here in Charlotte

  • Alex

    “In other words, people are stupid and need government to think for them…”

    I don’t think good regulations are necessary because people are stupid. They are necessary because people are selfish, greedy and don’t have the greater good in mind. There is nothing wrong with pursuing self-interests, but the days of neighborhood butchers are long gone. These days, we are dealing with huge corporations capable of harming great masses of people in pursuit of their happiness. They need to be kept in check. Our founding fathers did not have that problem. The only source of great power back then was the government. That was 200 years ago.

  • BrettG

    Why are these experts surprised at deflation after: 30+ years of lowered wages, union-busting, companies going “lean & mean” by firing employee/consumers for “increased efficiency.”

    Then you add in wasted trillions in 2 wars “on the DC Credit Card,” corporate consolidations and oligopolies, Reagan/GWHB/GWB tax cuts for those who don’t need them destroying a budget surplus, massive income inequality putting massive amounts of $$ and assets in the hands of an increasing smaller number of holders.
    Then there is the outsourcing of labor, the “free trade” argument is bull.

    Deflation is also accompanied by larger amounts of $$ and assets in fewer & fewer hands.

    And now, the banks have massive $$$, but won’t lend because their retail customers are unemployed and not making payroll deposits. Those same customers have less money to spend – thus they cannot be customers without $$$. And without demand created by consumer $$$, businesses.

    Mr. Mishkin, how can consumers buy anything when they don’t have the $$$ to buy. Mr. Mishkin – your sell by date is long overdue.

    It would have been marvelous to have Dean Baker, Robert Reich and/or Jeff Madrick to counter this Laffer economist.

    The call for the market to deflate to a “normal” level was funny. Was “normal” only pre-2008, pre-2000, or pre-1980/81??

    And how would that counteract the wage losses by most earners since 1980?

    Just some simple questions.

  • BrettG

    Last sentence of my 4th graf should read – wihout demand from customers with $$, businesses have no reason to hire, make business investments, etc.

  • Matthew

    A good explanation for why deflation is bad:
    http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/

  • http://n/a Harris

    I am a financial advisor and cannot comment on how,from the beginnning, the crisis was mismanaged and the simple solution which whould have been enacted at the time due to my compliance departments prescreeneing requirement. However, I would like to ask the panel why they have not discussed the elephant in the room? The impact on the usa’s ability to compete in the global economy (in the future) due to erosion of the intrinsic value of our currency.

  • Matthew

    Question:
    Please explain the difference between a necessary adjustment in response to a babble, like the real-estate babble and deflation.

  • http://www.blackwalnutent.com Anna Savelesky, Walla Walla, WA

    Dear Mr. Ashbrook,
    Deflation is an anathema to the Feds because it raises less revenue!!! That is the whole issue, in my opinion. Of course, I recognize all the other factors. My deceased husband and I discusse this 40 years ago. Goods have tactile value. Service does not. Service is base on need an the availablility of disposable income. In deflaction, DI is less available for service. My most valuable asset which we invested in all our lives is now declining daily in value so my retirement savings is disappearing as I write this letter. I have a little savings in liquid forms but they are disappearing to maintain the physical asset. All people my age are in this boat. Deflation in assets and inflation in costs equals reduced standard of living. I no longer buy food I like, only what I need. Same with other spending. The sad thing is seeing all this coming and being unable to affect it with voting or other civil activities. Anger and frustration equalls abominations like the tea party.
    Thank you for the forum.
    Anna Savelesky

  • Hornet

    I believe that the ultra rich have partnerships with both the republicans and the demacrats, so no matter which way we vote we are cutting our own throats. 2% of the people hold 98% of the money, they could end this recession tomarrow, but they profit more by holding on to their money while we are in decline.

    What we live in to day is not really a democracy or a republic, it is more of an oligarcy with a false front of a free market. What we are experiencing is really the failure of a govermnent controlled economy. We have not seen a truly free market for 150 years.

    Just a moddern day example. If the government did not subsidize oil prices, don’t you think the natural market price for fule would have driven us to affordable wind and solar, excetera, a long time ago? Now they are taxing us to subsidize both wind and fule. Is this insane or what? And they are taxing us to subsidize innovation of new technologies. What government intervention is actually doing is inhibiting our markets and our innovation curve. If we could just be a free country again we could once again be growin, again.

    80% of the federal government is a waste of money, cut it down.

  • Zeno

    The recession could be end or at least be greatly ameliorated by ending usury by banks. The credit card interest rate should be fixed NATIONALLY to the prime lending rate at no more than 2 percent over prime…and that goes for all short term loans as well (payday, overdraft, etc.)

    No loan of any kind should be exempt from usury state local usury laws. Congress will never touch or even discuss this subject. We all know why they don’t even raise the subject.

  • jeffe

    Bush’s fault that’s not what I meant. In part some people over extended themselves, some were taken for a ride, and others ended up under water with their mortgages.
    A lot of people lost their jobs which added to the debt.
    My point is if we had good regulations this kind of environment of huge risk taking would not be how our economy was run. We had years of banks and wall street telling us that you you could borrow as much as you wanted.
    People fell for it. Are the general population stupid? I would say they are mostly uneducated. I would include myself in this group as I have no way of understand how default swaps really work.

    My point was that Canada had good regulations and they still had growth. Germany is another country that has good usury laws and they are growing right now. Germany’s unemployment is at 7.5% and falling while ours is growing. Canada’s is at 8% and they did not have the housing crisis we have, which is still out of control.

  • TomK

    Hornet, I agree with you that we have moved from a middle class society to an oligarchy, or a medieval society with dukes and barons replaced by corporate executives. I agree that both the Dems and the GoP act like pawns of the corporocrats. However, eliminating gvt is not the solution. There is no way to take back the USA but by taking back the gvt and restoring progressive taxation and regulation of the corporations. Otherwise they will crush us like bigs.

    From the end of WW2 through the 70s we had strong progressive taxation and strong gvt regulations. What happened? The middle class got richer every year and the median wage rose when the GDP rose. Since 1980 we’ve cut taxes and regulation and bought the idea that letting the corporations run wild is good for America. What happened? We’re sitting in what happened.

    Do we need to call for Sherlock Holmes to figure out what works for the middle class?

  • Hornet

    TomK,

    I do not think that we need to get rid of government either, just most of it. Their are more departments and czars than you can shake a stick at. What does the department of education do besides waste money and let each president boss our teachers around. It’s like we are dogs on a chain tied to a government tank. I live in Wyoming and this state gives the federal government 8 billion dollars a year, and we get back about 1.8 billion in services. What are they besides thieves?

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