Gloom & Doom

From an article on Bloomberg.com:

The worst recession in half a century may be prolonged because consumers see few signs job losses and declines in home prices are ending, economists Nouriel Roubini and Robert Shiller said.

“The fundamental problem, as Franklin Delano Roosevelt said in 1933, is fear,” Shiller, a Yale University professor, said yesterday on Bloomberg Radio’s “Surveillance.” The Great Depression was deepened by a “sense of lost confidence or animal spirits that was a self-fulfilling prophecy. The worry is that we will have the same kind of issue arising again,” he said.

The U.S. needs another stimulus package because President Barack Obama’s initial $787 billion plan hasn’t been implemented fast enough, according to Shiller. Roubini, an economics professor at New York University, said more spending is necessary to avoid stagnation like Japan’s in the 1990s.

Concern the economy isn’t recovering after 18 months of contraction pushed stocks down in the last four weeks after the Standard & Poor’s 500 Index rallied 40 percent since March 9. Roubini and Shiller said a lasting improvement in consumer sentiment is needed before U.S. growth can resume.

There is a great divide. The economists that I admire say there is a need for another stimulus. People (usually not economists, but some right wing economists) say that there is no need for a stimulus (indeed they worry about inflation or even hyperinflation). It will take years to know who is right. But I know which side I stand on: the stock market is signaling that things look bad, the economy is flagging, there is a serious need for something to boost confidence and spending.