Paul Krugman’s column offers a dark take on the last few days on Wall Street, one that chimes with warnings about an overheated housing market and criticism of the way in which economic statistics have been used to hide the real pain that too many in our economy feel everyday.
He calls it “gravity,” as in that magnetic force that drags things back to Earth, and it poses danger for the U.S. economy — and by extension, all of us:
(T)he return of economic gravity poses a definite threat to U.S. economic growth. After all, growth over the past three years was driven mainly by a housing boom and rapid growth in consumer spending. People were able to buy houses, even though housing prices rose much faster than incomes, because foreign purchases of U.S. debt kept interest rates low. People were able to keep spending, even though wages didn’t keep up with inflation, because mortgage refinancing let them turn the rising value of their houses into ready cash.
As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.
Now that game seems to be coming to an end. We’re going to have to find other ways to make a living — in particular, we’re going to have to start selling goods and services, not just I.O.U.’s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.
Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what’s happening in the housing market is “a very orderly and moderate kind of cooling.” Maybe he’s right. But if he isn’t, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.
Channel Surfing, The South Brunswick Post, The Cranbury Press
Hank Kalet 