Wednesday, February 11, 2009

More Wednesday "We are so, so fucked" Blogging

Deflation, here we come. For why that's bad news, read my two articles on deflationary spirals from my compendium of economics theory. Also read my comment on Brad Delong's posting, it explains about why the dollar remains a viable reserve currency despite U.S. economic problems and why Milton Friedman style monetarism, as done by Fed chairman Bernanke, isn't working (i.e., because we are pushing on a string).

And in other "we are so fucked" news, the economy declined further in the 4th quarter than was originally calculated. GDP declined by over 5%. To find another year where the GDP declined by such a huge amount you have to go back to 1946, when the U.S. industrial machine suddenly shut down to re-tool from making tanks and bombs to making cars and sewing machines, and that was a very special circumstance. Before then, you have to go all the way back to 1932 to find such a decline. (Statistics courtesy of the U.S. Bureau of Economic Analysis). To find a worse quarter, you have to back to the second quarter of 1980, which effectively killed Jimmy Carter's chances of re-election, and before that, the first quarter of 1958. But those were short, sharp shocks in the economy from which the economy swiftly recovered. It seems unlikely that the economy will swiftly recover from the 4th quarter's steep drop, given that the economy has been declining since December 2007.

-- Badtux the Fucked Penguin

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