The Fed and Our Recession

Here is a draft from last month that I finally am publishing. Yes, I still need to do other things than this blog (such as make a living!)

Op-Ed Columnist - L-ish Economic Prospects - Op-Ed - NYTimes.com:

"The Fed, in particular, has a hard time getting traction in modern recessions. In 2002, there was a strong sense that the Fed was “pushing on a string”: it kept cutting interest rates, but nobody wanted to borrow until the housing bubble took off. And now it’s happening again. The Onion, as usual, hit the nail on the head with its recent headline: “Recession-plagued nation demands new bubble to invest in.”

But we probably won’t find another bubble — at least not one big enough to fuel a quick recovery. And this has, among other things, important political implications.

Given the state of the economy, it’s hard to see how Barack Obama can lose the 2008 election. An anecdote: This week a passing motorist shouted at a crowd waiting outside a branch of IndyMac, the failed bank, “Bush economics didn’t work! They are right-wing Republican thieves!” The crowd cheered.

But what the economy gives, it can also take away. If the current slump follows the typical modern pattern, the economy will stay depressed well into 2010, if not beyond — plenty of time for the public to start blaming the new incumbent, and pu

nish him in the midterm elections."