March 1, 2009
market futures are down between 1% and 2% tonight... not that this
necessarily means much concerning how tomorrow's markets will close. It
might be worth noting that in order to have a meaningful bottom, we
generally have to have a "downside blowout". There has to be
heavy, if not panic selling, and a steep fall followed by a rapid rise. If
the market keeps slowly working its way lower, then, I think, the pieces
aren't yet in place for a meaningful rally.
I consider it very lucky that we haven't had a sizable
rally that would tempt money back into the markets. That poses the kind of
temptation that can eat investors for lunch.
Which brings us to Paul Krugman. Dr. Krugman calls
attention (Permanent Link to No saving grace)
to a statistic just announced today: that "Personal saving up to 5
percent of income. Good news in the long run, but in the long run Ö
('we'll all be dead'--Keynes' famous quotation). What it means now is that
the downward pull of slumping consumer demand will continue."
In a second article, Permanent Link to Friedman and Schwartz were wrong,
Friedman and Schwartz argued that the Great Depression was caused by the
failure of the Federal Reserve to lower interest rates fast enough, and
two? three? generations of economists have bought into that idea. But, he says,
Friedman-Schwartz argument appears to have been wrong. Dr. Krugman
says, "What we have now is a Fed that is determined not to 'do it
again.' It has been very aggressive about monetary expansion."
"And yet the world economy is still falling off a cliff. Preventing
depressions, it turns out, is a lot harder than we were taught."
In a third article, Permanent Link to Failing the test,
Dr. Krugman writes, "Itís a depressing spectacle: on both sides of
the Atlantic, policy-makers just keep falling short ó and the odds that
this slump really will turn into Great Depression II keep rising."