Unfortunately, IMHO this is the most realistic assessment of our current situation. Although I would rather not define "normal" as the conditions that preceded the current economic collapse so I disagree with the title.

Just keep a copy of Value Line's 'Long Term Perspective: Dow Jones Industrial Average, 1920-2005' taped to the fridge.

Raivo Pommer
raimo1@hot.ee

US-Notenbank

Zur Stützung des amerikanischen Finanz- und Immobiliensektors will die US-Notenbank zusätzlich eine Billion US- Dollar (770 Mrd Euro) in die Märkte pumpen.

Wie die Federal Reserve am Mittwoch in Washington ankündigte, will sie bis zu 750 Milliarden Dollar (577 Mrd Euro) an hypothekenbesicherten Wertpapieren erwerben. Außerdem sollen bis zu 300 Milliarden Dollar an langfristigen Staatsanleihen gekauft werden, um die Zinsen auf verschiedenen Märkten zu drücken. Dadurch sollen Kreditklemme und Immobilienkrise überwunden werden. Zugleich beließ die Fed den US-Leitzins auf seinem historischen Tiefstand von knapp über null Prozent, der Mitte Dezember festgelegt worden war.

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"Die Federal Reserve wird unter den gegebenen Umständen alle verfügbaren Mittel einsetzen, um die wirtschaftliche Erholung voranzutreiben und Preisstabilität zu gewährleisten", hieß es in der Mitteilung der Notenbank nach der Sitzung des Offenmarktausschusses.

The core problem that'll hamper any meaningful recovery from this mess is the obstructionist "Party of No" and their call-to-arms noise machine. Specifically, we might refer to this "New Axis" as the GOP and their "Sorcerer's apprentice-esque" gang of Blue Dog Dems....

I was not impressed with the article. It can be summed up as, "what they are doing would have worked in 1982, but this might not be 1982, and thus it might not work." While this is true, because such a statement cannot be true, there is nothing backing it up. Plus, isolating each part of the recovery plan and nitpicking it, misses the point that all these things are concurrent. Yes, the stimulus might be too small, that the bank plan might be too timid, etc. But it is hard to believe that the trillions of dollars being pumped in by the Fed and Treasury is not going to have an effect. We might not return to "normal", but maybe "normal" was an illusion to begin with. Maybe we will get something better.

Galbraith is almost surely right; unfortunately it would take 1930s levels of unemployment, misery and social unrest for our hidebound political system to be wrested from the control of the permanent ruling class long enough to implement his remedies. And there's no indication (thankfully!) that anything quite that dire is in the cards. My expectation is that we will bottom out fairly soon and then stay on the bottom for a decade or more of negligible growth, Japanese-style, watching our standard of living continue to erode slowly but inexorably all the while. What the ultimate political consequences of that will be I have no clue.

If federal doesn't mind, I'm going to try to translate the comment @ 7:19. Sorry if my German is a bit rusty....

US Treasury Department

To support of the American finance sector and real estate sector, the US bank of issue [I'm translating this as Treasury; it might also refer to the Fed] wants to pump an additional trillion U.S. dollar (about 770 billion Euro) into the markets.

The Federal Reserve announced on Wednesday that it wants to acquire up to $750 billion dollars (577 billion Euros) in securities, with up to an additional $300 billion dollars in long-term government bonds in order to push the interests on different markets as a means to alleviate the credit and real estate crises. At the same time the Fed left the US prime lending rate at its historic low of slightly above zero percent that had been previously set in mid-December.

"Under the current circumstances, the Federal Reserve must use all means available to guarantee price stability in the markets and promote the economic recovery."

Galbraith is far ahead of the curve on this - he was making this argument and these recommendations a year ago in his book The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.

The book came out in August and was terrifyingly prescient about the financial collapse in September.

I read it in November and got the main points as: Fuck the market, Fuck the deficit, fuck the fed, pay whatever it takes to create as many jobs as possible as fast as possible.

Too bad President-elect Obama and Tim Geithner didn't read it in time to propose a stimulus and bailout plan that would really work.

Our economists need to study the mathematics of chaos theory. They will quickly see that 'self correcting' only applies to parameter values within a certain range. When one, or several, of their modeled variables stray too far from 'normal' the entire system goes completely unpredictable.

When modeling, linear functions are expected to stay linear. But in the real world, all functions are only linear for a certain range of values and become non-linear when pushed outside those values. That's why the economic models are breaking down now. What the modelers thought would be straight lines have become exponential curves and the model has become useless.

Think of the orbit of a planet around it's star. The orbit normally stays within a predictable path. But if another star comes too close, then the orbit will be changed, often permanently.

Do the math!

"The Predator State" comes out in paperback in May. Its thesis is that in the mid-70s (when else?) the aging leaders of the Industrial State were replaced by Friedmaniac ripoff artists bent on fleecing the middle class of everything they had gained since the Thirties. The predators include, but aren't limited to, those at the top in finance, armaments, energy, transportation and pharma. As we know, they succeeded all too well, but like all vampires can't keep sucking forever; when it's dry, the victim (that would be us) dies. For a terrifying read, it makes Steven King look like an amateur.

"But it is hard to believe that the trillions of dollars being pumped in by the Fed and Treasury is not going to have an effect. We might not return to "normal", but maybe "normal" was an illusion to begin with. Maybe we will get something better."
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Maybe, maybe, maybe, might, "hard to believe", should (not will), "worked in the past", "cycles have ALWAYS been like this", "will improve in 2/5/10/20 years" - enough qualifiers to sink a battleship.
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I've been paying fairly close attention since this started and THIS is what I've noticed about virtually every public pronunciation. I'm REALLY certain they really don't have a clue what's going to happen and what to do.
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Our manufacturing base has all but disappeared. The financial system is falling apart because the rules and laws have been "gamed". Because the classical rules are no longer valid, the normal financial models don't work any more. These clowns are counting (praying, really) on the bailouts working because they literally don't have a plan B.
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We've got to have some sort of product-based economy back in place at the end for people to have jobs to look forward to. The banking industry is NOT our economy, as much as some would have us believe that it is.
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And ramping up a war or two, as much as it might provide employment for many (at least those who live through it) and manufacturing for the arms industry isn't the answer either.
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I'm not overly worried about al Qeida attacking us right now. They really don't have to. Corporate greed is causing more self-inflicted damage to this country than they could ever dream of doing.

Bernanke gets it, Galbraith gets it, Obama/Geithner don't.

If Obama doesn't dump Geithner soon, and focus now on cleaning house and creating a financial system that serves the real economy, the rest of his agenda is sunk. He still has time to do this, but time is running out.

Please, no more healthcare events until this is done.

>"... focus now on cleaning house and creating a financial system that serves the real economy... "

To accomplish this you would literally need the citizenry at the barricades with torches and pitchforks.

We (USA) are not there... yet. It will take full 1930's style depression to generate that kind of pressure.

Right now, the entire focus of those in power is to prop up the existing system well enough to prevent a complete collapse.

Hugo Chavez correctly pointed out that a progressive thinker like Obama may have been elected, but the 'system' is still firmly in control.

>"... focus now on cleaning house and creating a financial system that serves the real economy... "
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A BIG part of the problem is that they think the financial system IS the "real economy".

While I’m not a deficit hawk, some of Galbraith’s assumptions cannot go unchallenged.

Above all is the assumption that the rest of the world will bankroll such massive public debt because we’re “the indispensable country.� THAT is exactly the type of hubris, from both sides of the two-party duopoly aisle, that has us where we’re at right now.

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Buford, how much evidence do you need to persuade you that Obama himself IS "part of the system," let alone that he has been all along? Put down that 12th glass of Kool-Aid.

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Everybody else: You don't even need to read Galbraith. Read Paul Kennedy's The Rise and Fall of the Great Powers.

If Obama doesn't dump Geithner soon, and focus now on cleaning house and creating a financial system that serves the real economy, the rest of his agenda is sunk. He still has time to do this, but time is running out.

Please, no more healthcare events until this is done.

Healthcare reform is particularly important if even the best recovery policy won't spur a quick turnaround; its a key to mitigating the harms of an extended downturn, its also a key to mobilizing micro-entrepreneurship which becomes even more vital when large-scale institutions are in crisis.

The deepest belief of the modern economist is that the economy is a self-stabilizing system. This means that, even if nothing is done, normal rates of employment and production will someday return.

If you have tunnel vision, there is light at the end of the tunnel.

If the banking system is crippled, then to be effective the public sector must do much, much more. How much more? By how much can spending be raised in a real depression? And does this remedy work?

Is there real evidence that Congress and the Executive branch can really improve the performance of the economy? Right now they are a mixed bag: investments in new energy will pay off eventually, but are a drag on the immediate economy; propping up failing companies in particular businesses (AIG, GM) has the effect of postponing reforms in those businesses; borrowing large sums for diffuse spending creates additional debt without permanent improvement. If AIG and GM actually went bankrupt, the performing parts of those companies would (after due diligence) be bought by commercial enterprises, and the losses would be known and finite, instead of this uncertain dragging out.

The idea that government must intervene when the market suffers a setback always runs up against the fact that the government doesn't reliably have better ideas or more skills. At best, government is complementary.