The prognosis for the Great Recession is not good.

What's wrong with the current government approach to holding off the Great Depression II? Digby quotes Krugman at length, then goes on to add further information provided by a financially knowledgeable friend of hers.

Here is a really important point made by Digby's friend. The Obama administration is aiming the rescue actions of government wrong. Instead of spending to create new jobs, they are spending to prop up already inflated asset prices.

Her friend discusses the article by Paul Krugman and Robin Wells:

They make an important point -- as just stated -- that its key to get jobs back and that deficits don't matter if they are producing jobs. But, Krugman/Wells simply gloss over this in their larger commentary about govt deficits.... they fail to note that 80 to 90% or more of govt commitments in this crisis have been to prop up assets, not produce jobs. The Fed has basically engaged in the same high leverage act as the financial sector --- and the price tag for that is that we're a hair trigger away from collapse while simultaneously have so over committed the govt -- all to prop up asset prices because we said "no" to the Swedish model (which was short, not long) -- that, in effect, we've shot our wad at asset prices and when folks say, jobs, jobs, jobs, the oligarchs cry: too much govt debt.

Krugman/Wells simply do not explain this -- and the article would have been far superior if they had.

My short take on these articles is that Krugman/Wells explain that financial collapses occur because of excessive borrowing - bank and government leverage to build financial assets.

Borrowing is not inherently wrong. Borrowing to create jobs builds the economy. It's borrowing to prop up asset prices, especially financial assets which do almost nothing for the real economy of goods and services that is dangerous. But the oligarchs who currently run American society depend on financial prices for the wealth that guarantees their position in society. This is because Wall Street has expanded in recent years to create over 40% of the profits in the American economy at the expense of outsourcing real jobs to third world countries.

The different point of view that Digby adds also makes many very important points. Read both the Digby article and the Krugman/Wells article.

The Krugman/Wells article can be read in the New York Review of Books.