Wednesday, May 18, 2005


Now, I've been saying this for a long time (here, here, and here). But don't take the manic mechanic's word for it. From none other than Krugman himself:

. . . If he were Obi wan-Kenobi in this particular galaxy, what would he do to extricate the US from this mess? "No more budget deficits," he says. "We should be running surpluses." Tax increases: "We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%." And most of all, clean up the foreign-policy mess. Not much of a chance though. "We are a banana republic. For the moment, all of these things are politically impossible."

[. . .]

. . . And for him, the dollar is not weak enough: "It should go down more, for instance, against the yen." He does not realistically expect a major devaluation of the Chinese yuan - maximum 5%. Krugman admits it's hard to predict what happens next: "It needs a trigger. But I'm convinced it's the collapse of the housing market in the US that will trigger the dollar's decline." [my emphases]

[. . .]

Now, I don't claim to know the ins and outs of currency values, but I do know a little about markets. The housing market cannot withstand much more stress and it's gonna collapse.

Thanks to Suburban Guerrilla for the link.

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