Reading Peter Goodman's article on the pickle economic mess we're in, it seemed to me once again that economist Joseph Stiglitz comes closest to delineating the fault line and Goodman has a pretty good idea of what's going to happen next.
“There are many ways in which you can see us almost surely being in a Japan-style malaise,” said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. “It’s just really hard to see what will bring us out.” ...
...On Friday, Mr. Bernanke, whose board can operate independent of politics and the government, offered assurance that he still had powerful therapies to use should conditions worsen. Yet he also expressed concern about the potential side effects, underscoring a reluctance for more action.
“The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation,” he said. “We do.” Then he added: “The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.”
Right now, many homeowners owe the bank more than their homes are worth, prompting some to abandon properties, adding inventory to a market choked with vacant addresses. An Obama administration program aimed at slowing foreclosures has prolonged trouble, say some economists, by failing to relieve borrowers of unsustainable debt burdens or making transparent the extent of losses yet to be confronted by the financial system.
“The big question is, who’s going to swallow the losses,” says Mr. Stiglitz. “It should be the banks, but they don’t want to. We’re likely to be in paralysis for years if they prevail.”
The Treasury sits in the middle, concerned by the continued weakness of housing, yet unwilling to pressure banks to write down mortgage balances.
Like their Japanese counterparts a decade ago, Treasury officials worry that forcing the banks to take losses could weaken them and risk another crisis.
By default, muddling through has emerged as the prescription of the moment.
It didn't need to turn out like this. The decision made by timid pols to fall into the old trap of pontificating about the deficit -- at just the moment when the economy needed the most help -- has been the immediate cause of prolonged agony.
Once people get a damn stupid idea stuck in their brains, turning that idea around is like trying to turn the Queen Mary around in a bathtub. Even when they can see their neighbors are in desperate trouble.
Of course, there's always the dodge that the neighbors were "bad planners" or "morons" when it's the banks who were the morons and bad planners. The notion that banks can't afford to pay for their sins is ludicrous, given their recent profits and rewards to management.
Blaming the victims rather than the perps shows we're not just in economic trouble, we're in big social trouble, too.
