Tuesday, June 29, 2010

Krugman krash?

Yesterday Paul Krugman wrote that the US was entering a "third depression." Being the most-read economist in the country (and therefore ensuring they would be repeated by every other financial writer) it isn't surprising such words would generate a strong response. In a half-hearted attempt to stop what they knew was coming, President Obama and Fed Chief Ben Bernanke met this morning and the President announced "we share the view that the economy is strengthening, that we are into recovery." This view apparently wasn't shared by anyone on Wall Street today where markets plunged by around 3%.

Did Krugman cause today's market tumble? No, not really, but it's probably not a coincidence, either. More likely is that Krugman named the elephant in the room and said aloud what everyone's been thinking to themselves. Bad economic reports have been coming pretty regularly but with just enough good news for people to say the overall trend is inconclusive or even that the recovery is just getting up steam. Yesterday Krugman publicly connected the dots and said there's nothing inconclusive, let alone bullish, about this picture at all. What's been even more interesting than the markets' response is the number of commentators who have said that he may be right and the near absence of anyone seriously challenging his conclusion.

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