Krugman: "OK, we are a banana republic"

Krugman’s post is here, with an acknowledgment that we also possess nukes.

We’ve been on that theme a while. A few examples:

America: Banana Republic Watch May 6, 2007

End of Dollar Hegemony Coming? May 22, 2007

“We may just have started to feel the pain” March 6, 2008

A secondary theme:

Tthe US is in very much the same boat as Thailand and Indonesia in 1997, during the emerging markets crisis. And although the US arguably has a more diverse economy, the main things that differentiate us from them is the dollar’s reserve currency status (which means if we implode we do a great deal of collateral damage) and our nukes.

Selected sightings:

Debt Reckoning: U.S. Receives a Margin Call” March 15, 2008

“Eight hundred years of financial folly” March 23, 2008

From Imperialists to Third World? May 30, 2008

It took no particular insight to see these warnings.

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  1. Anonymous

    Rick santelli was the only sane voice on the CNBC boat. Should be up on youtube soon.

    Said that today looked just like the past 3 months, and that the people who are yelling the loudest that we need to fix this, they broke it and are bankrupt.

    Love it…

  2. Anonymous

    If we implode we do a great deal of collateral damage.

    That’s why I expect our foreign friends will help us through this even without a bailout bill.

    After it’s over we may not be reserve currency any more, but that cannot be helped.

  3. Anonymous

    Now we really should try to get something passed before the recess. Why? Because if not, the new Congress will come back in January and have no fear for their jobs, and vote in something even worse.

    Here's my suggestion (shooting for the moon here) the old plan, as one learned by listening to the conference call

    had Direct Purchase and Market Purchase provisions. Simply eliminate the Market Purchase option. Any involvement is Direct Purchase, like AIG or F&F

    That is a good bailout plan that really could make a profit for the taxpayers.

  4. lrm21

    Ok the Thailand and Indonesia comparisons are just silly already.

    We have our problems, we are going through a serious bubble burst, but come on. This is the most dominant industrial nation in the history of this solar system, I would say this quadrant of the galaxy.

    Times are gonna suck but this idea that 7% unemployment or 10% or hell 15% is the end of the world is ridiculous.

    The bottom line, it was a bad bill, there was no leadership, we have a lame duck president, we have a Treasury Secretary that has inspired zero confidence.

    We have a congress with Democratic leadership that has failed to respond or deal with any crisis in the last 24 months And you know what we are still here. Americans have woken up that the world will not end and we do not need to run to our government nannies.

    And yet the fear mongering continues. Your kids aren’t going to college, you cant buy a car.

    You know what this is a good thing, Americans need to save and they need to start now.

    This is the kicking and screaming of the power classes whose power is slipping and trying every trick in the book to maintain it.

    Good banks will survive bad banks will fail. Private industry if they are allowed will step in.

    Asset values will collapse to levels that private buyers will acquire them.

    When the manafucturing industry was raped over the last 20 years with NAFTA, and China trades everyone said tough its the market.

    Now that the Financial industry is being raped, they are threating to take the rest of America with them.

    Well lets see. This is not the first time we have had bank failures and we have suffered but we have come out stronger and for the better.

  5. Anonymous

    this made a brief appearance on wikipedia:

    Banana Republic is a pejorative term for a small country that is politically unstable, dependent on limited agriculture (e.g., bananas), and ruled by a small, self-elected, wealthy and corrupt clique.[1] It is most commonly used for countries in Central America such as El Salvador, Belize, Nicaragua, Honduras, and Guatemala. Based on vote of the House of Representatives on September 29,2008, the United States can now be called a banana republic.

  6. Lune


    We are most certainly not the most dominant nation in the history of the world (of the past 50 years, perhaps, but that’s it). Ancient Rome, the British Empire, and even China during the Middle Ages, were all exceedingly dominant in their days. They all shared one thing: every empire that ever lived was eventually superseded. Will America face the same fate? Of course. The more interesting question is will it face that fate in the next few years? The chances are getting higher each month (although they’re probably still less than 50/50).

  7. tuz


    I’m sure than you’ve read the BIS report and know the consequences of what is happening in the market, and I’m sure that you are more than plugged in, but here is a link to John Jasen’s Bond Blog for today market:

    Scary stuff….

    I don’t think people/congress understand just what is at stake.

    In 1929 there was the same disparity between the bond and equities market, and what the bond market is saying is not good.

    Treasury Inflation Protected bonds have a negative yield, -0.28, that is implying deflation.

  8. Anonymous

    Did anyone see the actual title of the bill that they voted on? You can’t even make this stuff up.

    H R 3997 RECORDED VOTE 29-Sep-2008 2:07 PM
    QUESTION: On Concurring in Senate Amendment With An Amendment
    BILL TITLE: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes

    Other purposes….

  9. Lodge

    Naked Capitalism.
    Alright we stopped it. Now we need to start posting alternatives or we will get the same bill all over again and this time we will not be able to stop it.
    We need links or if your talented in economic policy start writing.
    Brian Wells

  10. doc holiday

    From insane poster @ CR:

    Keep this in mind for today

    SPX p/e is P/E =14.05
    SPX Div Yield = 2.49%
    10 yr bond yield = 3.632%

    Then>> April 01, 2008
    SPX p/e = 17.40
    SPX Div yield = 2.49%
    10 yr bond yield = 3.5455

    As you know, in valuation we use the inverted p/e to determine yield, hence, use EPS of $78.74/$1106.42 = 0.07116, then add div yield of 2.49%, which is 9.606%.

    Take 9.606% yield and compare to 10 year Treasury yield which is 3.5455%, i.e, a difference of 6.061%.

    It is possible the SPX is 6% overvalued, hence, we saw this fall 8.81% today, but yet it is overvalued by another 6%+/- , which would bring us to about a SPX near 1040. Very possible IMHO and to be honest, the same thing I called for several months ago, with a DOW closing in around 9000 or below.

    Nonetheless, this is a matter of over-valuation and at that point, it would make sense to not panic and to look at future value.

    The bullshit with The Paulson bailout, is that a bailout is not needed and that the market will re-set, as long as we re-gain confidence, which IMHO, mens getting rid of Paulson, Bernanke, Cox, Bush, etc. We can't play bailout and keep the same people running the nuclear reactor that is melting down! These drunks need to be taken out today and replaced with people that will help us limp along, until honest Americans can be placed back into the control rooms!

  11. Abbott_Of_Iona

    Anonymous said…

    SEPTEMBER 29, 2008 5:09 PM

    “That’s why I expect our foreign friends will help”

    Your friends are bankrupt.

    All you have now is enemies.

    Your friends have been on the same drug that now has you cold turkey.

  12. Abbott_Of_Iona

    lrm21 said…

    “This is the most dominant industrial nation in *** history”

    And its name is China

  13. LJR

    Banana_Republic++ twice in one day!

    Seems like a nice match with World Depression II.

    At least some of the pigmen may lose weight over this. I predict low prices for used luxury cars.

    Keep up the good work Yves. Appreciate both your insight and ability to incite.

  14. doc holiday

    This is a fairly laid back place here, so I’ll toss this in:

    What if, we cut our SPX earnings by 6% to $74,02 and then decrease our SPX yield by 6% to 2.341% and then take down the Treasury yield 6% to abouts 3.32%, i.e, and for fun, we take down the SPX by 6% to 1040 and start over and say that future value will equal a forward SPX P/E of 14.05 which is an E/P of 7.11% added to div yield of 2.34 = 9.45% subtracted from a Treasury of 3.33 = 6.12% overvalued future value.

    So, what if, worst case here is that people freak out and the market drops 6% this week and then another 6% within the next qtr, leaving the SPX around 980? Within that range, IMHO, I think there is generational opportunity to buy into a recovery, but beyond stock valuations, there has to be investigations, there has to be a political power shift, and there has to be confidence restored in the form of real reform. A few trillion in bailout fun money, will create 15 years of debt and inflation that will sink America into the dark ages. The pain and the blood in the streets will be the sound of SIFMA dying and water being pour’d on the melting witches who need to evaporate into thin air.

    I love ranting and raving here, but the key is to not panic and recall movies like It’s A Wonderful Life — where George talks people into not being panic’d and to remain calm to get through this, because Paulson isn’t buying, he’s selling bullshit like Potter, the same bullshit that Buffett is pushing and Gross. Don’t be fooled by these con artists, remain calm and wait for opportunity! Let those suckers bleed in the streets and then, take advantage of them, when they hurt!

    Viva America!!

  15. Abbott_Of_Iona

    To the tune of

    “The Grand Old Duke of York”

    Everybody sing along

    The Grand Old Secretary Of the Treasury
    He had 10,000 friends
    He marched them up to the top of the hill
    And he marched them down again

    And when they were up they were up
    And when they were down they were down

    But when they were only have way up

    They were neither up nor down


    Hank promised his friends victory.

    He would put the final nail in American Democracy.

    He told them the people were too stupid to realise that this robbery could take place.

    And even if you told them to their face that it was a robbery they would be too frightened to change the way things are.

    Hank has disappointed his friends.

    Hank’s friends are angry.

    Hank’s friends have lost money.

    F**k Hank and f**k his friends.

  16. Abbott_Of_Iona

    Reported on Bloomberg (not new news)

    Hank says

    “We need to work as quickly as possible; we need to get something done,”

    “We believe that our plan, and the plan that we developed with congressional leaders and worked so hard, is a plan that works. And we need a plan that works.”

    What Hank,

    A plan like this?

    “Sec. 8. Review

    Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”


    Sandra Day O’Connor ~ Retired Associate Justice of the Supreme

    Could give you some private tuition on the nature of Democracy and the founding principles of the Republic of the United States of America.


    If you just don’t get it ~ Democracy

    There are many countries in the world where you can travel in your imminent retirement that don’t get it either.



    Just leave America (alone)

  17. Anonymous

    Barclays COO beaten to death while trying to break up street fight:

    Any banker who gets in the way of an experienced brawler is too stupid to live. I’m tired of bankers telling me they think of themselves as kind of dangerous in a fight. An experienced brawler who won’t think twice about gouging out our eye or tearing off your ear can sh*t-stomp a banker without breaking a sweat.

  18. Anonymous

    “You want your kid to go to college: save some, pay slightly higher interest rates, and watch as tuition stops increasing 10% a year.”

    20 years ago tuition at a private institution was around 7,000 / year…

    Now? $20 – $40k / year…

    Teacher’s salaries have NOT risen as fast as the price of tuition, nor have the monies given to visiting artists, as a matter of fact, in some casesthey’ve DECREASED.

    Why? Because colleges knew that Banks would lend students money…Bye bye Fanny Mae, bye bye Freddie Mac.

  19. Anonymous

    Doc Holiday,

    But if you take the SPX lower, doesn’t it inflate your yield? Total yield here is (Earning+Dividend)/Price. Earning and Dividend changes less than Price, and so does Treasury yeild. As a result, when SPX drops, your calculation will show that SPX is even more overvalued than when it was at higher level. No?


  20. dd

    Let’s start a bailout bill. Here’s a start:
    No Bailout without:
    1. Re-instituting independent special prosecutor to investigate executive branch malfeasance and to insure bailout process is not simply another looting exercise;
    2. Equity stake for shareholders on par with Buffet deal;
    3. Price discovery mechanism for purchase of “bad debt”
    4. Suspend the OTC derivatives/CDS until a full investigation determines the mechanisms and no bailout of this market until further study.

  21. American Goy

    I am beginning to really like this blog.

    Lets have a party – why the gloom and doom? I’ll bring Guiness and cheap vodka.

  22. paddy

    So is GS going to hoover up as much waste as it can and then sell it on to TARP or more likely (given the executive renumeration clauses) simply profit from TARP propping up “toxic assets” prices? Is this a sign that TARP/son of TARP is already working?

    From the FT

    Goldman seeks to buy up to $50bn in assets

    By Henny Sender in New York

    Published: September 28 2008 23:08 | Last updated: September 28 2008 23:08

    Goldman Sachs is seeking to acquire up to $50bn in assets from ailing US banks as part of its push into commercial banking, Goldman executives say.

  23. Anonymous

    Treasury Secretary Paulson and Federal Reserve Chairman Bernanke have lost the people’s trust and for the good of the country, both should resign.

  24. Anonymous

    dd, you’re thinking small.

    Screw the banks. Inject the $700B directly into the economy. Every man, woman and child get $2,000. Those w/mortgages have to pay the mortgage company, those without get to spend it anyway they want. Either way, banks are funded and money is injected into the economy. Why waste $700B on those Wall St. bastards?


  25. Jillayne Schlicke

    Since we all heard that Warren Buffet was betting on the House bill passing, I wonder what he’s saying/doing tonight?

  26. DailyVus

    was away living life today. got the news after 5:00pm -wow!
    Lodge, The links on Rubini’s web site are always worth checking. He’ll have good ideas. He’s been reporting on this for a long time..

    Did anyone cringe as I did at the photos of the smiling Democrats? It made me wonder what they were being set up for since the Bush summons of Obama to Washington failed to amount to anything.

    Maxine Waters was on the radio this evening saying that as the Republican NO votes began to add up, the Democrats started voting NO.

    Sounds like a game of chicken -nothing to do with the merits of the bill.

    So my elation is short lived but the tension is at least a little relieved.

    I’m so afraid that without leadership the message isn’t going to get through that, regardless of the urgency, and maybe because of it, turning over the management of the store to the people who’ve been extorting it and killed your family is an outrageous treasonous dangerous thing to do.

  27. Anonymous

    John “Pussy Head Man from Outer Space” McHitler is going to have a lot of shit to explain to the voters.

    Come election day, I think they are going to tear that motherfucker a new asshole right through his gosh damned Depends adult undergarments.

    “Uh-oh, Grampaw made a stinky-winky… Not it!!”


  28. Anonymous

    “Teacher’s salaries have NOT risen as fast as the price of tuition, nor have the monies given to visiting artists, as a matter of fact, in some cases they’ve DECREASED.”

    Yves might look into the economics of higher education, but the whole thing is a scam whereby colleges grow exponentially, buy themselves pretty buildings and in many cases float the real work on cheap labor (grad students or adjuncts). Hence the administrations grow and grow and grow.

    -The tuition grows as the administration grows. But the reality is that they’re selling a lie.-

    1. There are a contracting number of technical and science jobs in this country. Those that remain have been given to temp visa foreigners.

    2. There are a contracting number of jobs of all kinds that benefit from higher education.

    3. If you’re innovative and bright the college will simply steal your ideas, market them to industry and kick your ass out the door with a worthless piece of paper. Hence the notion that universities are centers of technical innovation is correct in a sense (more innovative ways to generate money to hire more administrators)

    4. The university exists for faculty and administrators only. Society
    as a whole requires perhaps 1/5 the number of educated being produced. Hence universities are now parasites that have grown larger than the host.

    5. The IVY elite LOVE this education scam because the IVY league limits the growth of new students. Hence as the population grows, the relative scarcity of IVY graduates increases.

    (Yves is excluded from my superficial and intentionally inflammatory appraisal of IVY elitist pigs. He will be permitted into the compound after society crashes and burns).

  29. bobmitchell

    I took in a class in “High Performance Buildings” aka Green Buildings. We had a guest speaker from the university of Texas I’ll try and spare him by not saying the exact school.

    He was in charge of new buildings. His first comment was that colleges stopped building because they needed the room a long time ago, now they build to put someones name on it.

    Given that, he went onto discuss the various things that he had experimented with in the Green Building arena. He clearly had too much money to spend, and had to spend it.

    He tested and tried to implement everything that he thought even might make a difference in the overall energy footprint of the building. He had statistics on solar panel efficiency back 20 years. He put solar panels on the north side of one building just to see what might happen, they did actually produce electricity. They were measuring the effect of having the roof being different colors, and textures. One of the buildings, the coolest one in my opinion, was a giant water colector that collected rain water from the roof-top gardens and then used that to moderate the temperature in the building.

    Neat? In my opinion very. An efficient use of resources? Given his initial comments, no.

    Completely off topic, can’t keep reading the newspeak that is coming out of the idiot box.

  30. doc holiday

    Anonymous @ 9:06,

    Yah, I don't know, I'm making cookies.

    Ok, let's start over:

    You said: But if you take the SPX lower, doesn't it inflate your yield? Total yield here is (Earning+Dividend)/Price. Earning and Dividend changes less than Price, and so does Treasury yeild. As a result, when SPX drops, your calculation will show that SPX is even more overvalued than when it was at higher level. No?

    >> Ok, I see what happened. I came up with the E/P as a yield and then added the div yield to that, and your saying add the cash dividend to the EPS… right?

    I think we may be on the same page, but who can say?

  31. mxq

    I’m really having trouble getting my arms around why this bill’s failure is supposedly a good thing.

    Specifically, the language of the bill that said:

    a. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure

    b. Require loan modifications for mortgages owned or controlled by the Federal Government

    was a pretty darn good alternative to the now almost guaranteed 50% cumulative downside move in housing prices.

    The hope now program was the “voluntary” version of the above, and as we have seen, not a whole lot of banks volunteered…but why would they? Nobody has loss mitigation departments. They’re not profitable. They’d rather let the mortgages rot.

    So, again, I’m at a loss as to how we can possibly keep people in their homes. Recapitalizing the banks via some other method doesn’t set up loss mitigation departments. Mod’ing a home only becomes profitable if everybody does it (keeping foreclosures to a minimum and stalling price depreciation).

    Recapitalization hooey…that doesn’t solve anything, this bill was just a front to get the mortgages off the books so we could keep people in their homes. But a lot of people, including congress, missed that point.

  32. bg

    “It took no particular insight to see these warnings.”

    Then why have I felt like an oddity being an uber bear for over a year? Why are so many ‘smart’ people so surprised?

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