The edge

"It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge."
-- Paul Krugman, February 5, 2009, "On the Edge"

Don't push me, cause I'm close to the edge
I'm trying not to lose my head, uh huh huh huh huh
Its like a jungle sometimes, it makes me wonder
How I keep from going under

From our Barack Fans in the Colbert Nation for Obama BFF, Grand Master Melly Mel C

On the Edge

Published February 5, print issue February 6, 2009

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

Go to Columnist Page » Blog: The Conscience of a Liberal

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.

It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.

Consumers, their wealth decimated and their optimism shattered by collapsing home prices and a sliding stock market, have cut back their spending and sharply increased their saving — a good thing in the long run, but a huge blow to the economy right now. Developers of commercial real estate, watching rents fall and financing costs soar, are slashing their investment plans. Businesses are canceling plans to expand capacity, since they aren’t selling enough to use the capacity they have. And exports, which were one of the U.S. economy’s few areas of strength over the past couple of years, are now plunging as the financial crisis hits our trading partners.

Meanwhile, our main line of defense against recessions — the Federal Reserve’s usual ability to support the economy by cutting interest rates — has already been overrun. The Fed has cut the rates it controls basically to zero, yet the economy is still in free fall.

It’s no wonder, then, that most economic forecasts warn that in the absence of government action we’re headed for a deep, prolonged slump. Some private analysts predict double-digit unemployment. The Congressional Budget Office is slightly more sanguine, but its director, nonetheless, recently warned that “absent a change in fiscal policy ... the shortfall in the nation’s output relative to potential levels will be the largest — in duration and depth — since the Depression of the 1930s.”

Worst of all is the possibility that the economy will, as it did in the ’30s, end up stuck in a prolonged deflationary trap.

We’re already closer to outright deflation than at any point since the Great Depression. In particular, the private sector is experiencing widespread wage cuts for the first time since the 1930s, and there will be much more of that if the economy continues to weaken.

As the great American economist Irving Fisher pointed out almost 80 years ago, deflation, once started, tends to feed on itself. As dollar incomes fall in the face of a depressed economy, the burden of debt becomes harder to bear, while the expectation of further price declines discourages investment spending. These effects of deflation depress the economy further, which leads to more deflation, and so on.

And deflationary traps can go on for a long time. Japan experienced a “lost decade” of deflation and stagnation in the 1990s — and the only thing that let Japan escape from its trap was a global boom that boosted the nation’s exports. Who will rescue America from a similar trap now that the whole world is slumping at the same time?

Would the Obama economic plan, if enacted, ensure that America won’t have its own lost decade? Not necessarily: a number of economists, myself included, think the plan falls short and should be substantially bigger. But the Obama plan would certainly improve our odds. And that’s why the efforts of Republicans to make the plan smaller and less effective — to turn it into little more than another round of Bush-style tax cuts — are so destructive.

So what should Mr. Obama do? Count me among those who think that the president made a big mistake in his initial approach, that his attempts to transcend partisanship ended up empowering politicians who take their marching orders from Rush Limbaugh. What matters now, however, is what he does next.

It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk. The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over that edge.
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Okay, keep it up, Mr. President; you were getting much warmer with the tone you hit yesterday at the House Democrats' retreat in Williamsburg, Virginia. We'll play in the same sandbox and share our toys and make the rules of the game together, but here's one for starters: we're in the mess we're in because of you and your old ways of doing things, so that's one toy we don't want in the sandbox. We're playing a new game to get ourselves out of the fix into which you got us. Face it.

Rough 'em up a little. Knock some sense into 'em. What is their problem, exactly, anyway?

Oh right, they complain that this isn't a stimulus bill, it's a spending bill, but you told them! That's the point, guys. A stimulus bill is a spending bill, and Mr. Krugman thinks it should be a whole lot bigger. Who said to shoot for $1 trillion rather than a shy almost $1 trillion?

That's the stimulating ticket. This might make Jericho a little more right than Q, for right now, anyway, and than I.

Lots of people are pretty shaken. I learned a little myself yesterday.

Several days ago, I presented my Citibank Visa card number to the hotel where Sam and I will be staying to ski in a little more than a week. They contacted me to say that it had been refused. I was perplexed. That account was nowhere, and I mean nowhere near the credit limit on the account.

I let a couple of days go, sure they had made some kind of mistake, and then I happened to go online and check something on that card. My attention was caught by the fact that I only had $201 remaining credit on the account.

Hunh? How could that be? I went to the information on the account. The credit limit had been dropped from double-digits to just above my low remaining balance, and I called the toll free number faster than I dial my son's cell phone number in an emergency.

A very nice, polite, personable young man apologized for the situation, lowered my interest rate back to prime plus 5% (better than what it was... I'll take them on for more later), refunded what had been paid in interest since they raised it, and then explained that he couldn't do anything about the lowered credit limit, assuring me that I had to have done something very bad to have gotten that treatment.

But, I hadn't done anything very bad. I have next to no creditors, low or non-existent balances (owing to having moved to personal credit adverse Europe almost 7 years ago and having learned to change my financial attitude and behavior), and the only thing I had done wrong was pay my last Citibank Visa bill a day late because I lost track of the reminder email in a sea of incoming email while we were at the peak of our MYBO Grassroots Inaugural Ball 2009, the Social! in January. He suggested I call back when the people with the authorization to handle my problem would be in the office, or after 7 am CST.

I called on the stroke of 2 pm here, and reached Lisa. I told her the truth. I acknowledged my passion for getting Obama elected, my getting carried away in planning a grassroots ball for the volunteers and the regular people at Universalist National Memorial Church in Washington on Martin Luther King Day, and she listened patiently.

"Thank you," she said, "for your honesty. Most people don't admit to having done anything wrong."

"I did," I said, figuring a little more mea culpa couldn't possibly be ill-advised right then. We exchanged a few more pleasantries, in which I made it very clear that I haven't spent anywhere near my credit limit in years and years, that I regard the previous credit limit as for emergencies -- while traveling, for example --, pay more than the minimum payment each month, and when I made my last payment, it was far in excess of the $64.03 that had been overdue a day.

"I see that," she said, "and I do see that you have been a customer for 23 years [don't remind me, please], so I am going to submit your file for review and suggest that your credit limit be returned to its previous level."

I thanked her, and I went out of my way to tell her how important my good credit rating is -- know that credit bureaus view any reduction in credit limit, whether through your own fault or the prevailing economic climate and bank fear, as a negative and adjust your credit rating accordingly --, especially since while I am certain my husband loves me and isn't about to walk out the door, one never knows, and I might just need that to set myself back on my feet one day.

"Oh, I hear you," she said, "I hear you."

Thank heavens for other women when you're in a bind, especially fellow Obama supporters.

Thank you so much, President W.

Beware, everyone.

Let's hear it from Paul Krugman...

Visit msnbc.com for Breaking News, World News, and News about the Economy

Here, Joe gets credit for the single-stupidest statement:

"In the 1990's, I don't know that there was gridlock, there was a separation of powers, and, uh, uh a division of authority that I personally think worked well..."

Gingrich's whole program, his Contract With America, was refusal to cooperate with any Democratic initiative. Just ask Dole. You go, Joe!


Update: February 9, Citibank Visa credit limit reinstated.
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