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Today the yield on US Treasury 1-year bonds fell to 2.50%. Three months ago, it was above 3.25%. In April, it had actually peaked at 4%. A falling interest rate means that investors are worried about the long-term economic outlook of the United States. Many people have been arguing for months that we must begin reducing the deficit to improve investor confidence; it has gotten to the point where this is conventional wisdom. Except, that’s not why investors are saying they’re worried.

On August 1st, the Wall Street Journal ran this story about why investors were becoming worried. In short, a stalling economic recovery and fears about deflation. In other words, another Great Depression. The investors interviewed in this article were clear that they were only preparing for the worst and that it might not happen. However, today Bloomberg reported that capital spending declined in July. In addition, within the past month the Presidents of the St. Louis and Boston Federal Reserve Banks have both made it clear that they’re worried about deflation; the current inflation rate is only about 1%.

So how do you deal with a stalled economic recovery and potential deflation? read more »

Joseph Stiglitz is one of the great economists of our time, a reputation that was secured even before he accurately predicted the financial collapse and its magnitude. He is a professor at Columbia University and a winner of the Nobel Prize in Economics. But perhaps more importantly, he is a visionary who has provided us with a roadmap to a more prosperous America. I have just completed his recent book Freefall and can say without reservation that it is one of the two or three most important books I have ever read.

Stiglitz himself highlights what I think is a major asymmetry in our society. In the spectrum of economics, he is a centrist, falling between the socialists on the left and the equally radical neoclassicists on the right who have dominated our country for the past few decades. In the political spectrum of our country, he would fall in the center, if not center-left, of the Democratic Party. His very existence, never mind the content of his book, highlights how radicalized our society has become.

The book has four parts. The first is an explanation of where the Great Recession came from. The second is an explanation of what happened during the collapse. The third is a catalogue of the failures of both the Bush and Obama administrations (especially the later) in dealing with the crisis. And the fourth, and easily most important part, is his roadmap for fixing the long-term structural problems with our society. read more »

I am one of the youngest, if not the youngest, person to participate on this blog. I am so young that I cannot remember a time when gay marriage was not allowed; I was only 13 when the Massachusetts Supreme Court issued its decision ordering the state to begin granting marriage licenses to gay couples. As with many other issues, gay rights highlight a massive generational rift in our country. My generation is overwhelmingly pro-gay rights and does not see why gay marriage has caused such controversy. With that in mind, I’d like to present my view on the national “debate” over this issue that has played out over the past nearly seven years.

When gay marriage was legalized in Massachusetts, I really did not understand the full meaning of what happened. I was simply too young. I barely even remember it beginning. What I do remember is the campaign to put a referendum on the ballot about gay marriage. I was only a freshman in high school at the time, not exactly an age for gaining clear insight into the world of adults and their politics. All I can remember at the time is being shocked that anyone would oppose gay marriage. It was a question of happiness, a judgment that has stuck with me ever since. read more »

I found out about the Anti-Defamation League’s decision to oppose the proposed construction of a mosque and community center two blocks from Ground Zero on Paul Krugman’s blog yesterday. He was incensed, attacking the ADL for hypocrisy. After reading the front page New York Times article this morning, I was furious as well and wrote a very angry blog post about the subject. But then I realized one shouldn’t write when angry and scrapped the post. Perhaps better to leave it alone.

But as I was perusing the blogosphere this evening, I found a very evenhanded analysis of the situation from Nate Silver, which I why I’m writing this post. His post is mostly about how pathetic a job the media has done reporting on this subject (big surprise). He also gives what seems to be the only comprehensive explanation of the facility and, in passing, points out that other faiths already have houses of worship in the area. Please do read his post.

I would only add two points. The first is that we should not hold moderate America Muslims accountable for September 11th; they had about as much to do with it as the rest of us did. They are not guilty because they share their faith with over 1.2 billion other human beings. But my second point is more important. Is there anyone who reads this blog who does not think that moderate Muslims should be speaking out against extremism? Is there anyone on this blog who does not think moderate Muslims should be reaching out to build ties with people of other cultures and faiths? Yet, when they try to do so, we vilify them. If we want to work with American Muslims and moderate Muslims worldwide to combat terrorism, we need to grow up.

This morning I noticed that Greg Mankiw had posted a link on his blog to an issue summary from the Congressional Budget Office (CBO) that was published four days ago. It can be found here.

The report is entitled “Federal Debt and the Risk of a Fiscal Crisis.” If you are at all interested in the economic forecast for our country, you should read this document. It’s clearly written, easy to understand, and only 8 pages long.

My interpretation of this report is that we have yet to experience the worst side effects of the recession. Eventually, government spending has to be reformed. Under current policies, we would have to either reduce spending by 1% or increase revenue by 1% immediately to keep the federal debt under control. Under the “alternative fiscal scenario,” which includes hypotheticals such as the extension of the Bush tax cuts and the repeal of healthcare reform, it would be 5%, which is equivalent to 20% of the government’s non-interest spending.

The report also looks as three recent fiscal crises: Argentina, Ireland, and Greece. These provide interesting insights into the future path our country might take. The biggest question seems to be at what point do investors lose confidence in the US government’s ability to pay off its debts.

Although the report doesn’t come out and say it, it seems that the absolute worst thing that could happen in the next few decades is another recession. And while the recent financial reform was a good start, it’s pretty clear that no one thinks it will prevent another collapse of our economy. We would do well to understand how the US avoided any major recessions, relative to our current one and prior ones, for most of the 20th century.