Saturday, September 20, 2008

Crisis Endgame

Here is an op-ed piece from the NY Times by the economist Paul Krugman.

He explains in plain terms what has happened to the US economy and what needs to happen next to keep us out of an ever-worsening credit environment. 

I am going to try my hand at an analogy that might fit our situation. The economy in this credit crisis is like an engine that has bad oil in it. Due to the pervasiveness of toxic derivative paper (everyone is holding it, and people don't know how much they have) inter- and intrabank lending is seizing. This is like a engine with oil that has lost its viscosity. Unless the economy can flush out the toxic paper (the bad oil), the economic system (the engine in my metaphor) will suffer permanent damage. 

The fed and the treasury have spent around one trillion dollars so far, engineering an oil change for the domestic economy.

A chart of the money spent on this oil change is here. Hey, next time, get to the discunt window before 8:00 am- I hear they have an early bird special that can save you some money. 

The question is...will this be enough for Hank and Ben - our favorite Qwik Lube employees - to make a difference?

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