In These Times

Bursting Bubbles -- Why the economy will go from bad to worse

In the first of a special two-part series on the economy, Baker explains how related bubbles in the property and currency markets have yet to burst, and how that prospect could severely hamper our quality of life for years to come. In December 1999, when the economic and political establishment was singing the praises of the “new economy” and promising an era of unparalleled prosperity, In These Times ran “After the Fall,” a cover story by Dean Baker, which explained that a stock market crash was inevitable. Baker also warned of some of the consequences of the crash—downsized 401(k) retirement plans, a funding crisis for defined-benefit pension plans, shriveling endowments for universities and foundations, and a recession pushing the unemployment rate up past 6 percent.
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At some point, the dollar will have to fall significantly to bring the deficit down to a sustainable level. When this happens, the resulting rise in import prices will contribute to a rise in the inflation rate and a deterioration in domestic living standards. If the Federal Reserve Board raises interest rates to prevent an increase in the inflation rate, then the impact of the falling dollar will be especially painful, as higher unemployment, which accompanies higher interest rates, will be an inevitable result.

The triple bubble economy of the late ’90s presents the most difficult set of economic problems since the Great Depression.

Also check out the latest Vonnegut and the War-time follies of former Progressives among other articles.

In These Times