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Krugman: We've All Been Madoffed

By Kevin Spak, Newser Staff

Posted Feb 16, 2009 8:38 AM CST

(Newser) – Bernie Madoff’s investors thought they were getting richer every quarter. Then, one day, they discovered their wealth “was a figment of someone else’s imagination,” writes Paul Krugman in the New York Times. And sadly, that’s a pretty good metaphor for America’s experience this decade. We thought we were getting rich, and now awake to find average household net worth lower than it was in 2001.

This shouldn’t surprise us, of course, since we weren’t saving. The savings rate dropped from 9% in the '80s to just 0.6% from 2005 to 2007. We borrowed and spent, trusting our portfolios to keep growing. “Then reality struck,” says Krugman. “The surge in asset values had been an illusion—but the surge in debt had been all too real.”

[Images (4)]

[Quotes (2)]

Market charts show weekly figures for Dow, S&P 500 and Nasdaq.

A man leaves an American International Group office building Tuesday, Sept. 16, 2008 in New York. (AP Photo/Mark Lennihan)

In this Wednesday, Jan. 14, 2009 file photo, Bernard Madoff, the accused mastermind of a $50 billion Ponzi scheme, leaves Federal Court in New York. (AP Photo/Stuart Ramson)

Specialist Ned Zelles works on the floor of the New York Stock Exchange Wednesday, Oct. 15, 2008. (AP Photo/Richard Drew)

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If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. - Paul Krugman

The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump. - Paul Krugman

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COMMENTS

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Showing 3 of 4 comments

woodyTX

Feb 16, 2009 5:53 AM CST

I fear this one is more than a bubble bursting but is a confluence of events which is exposing the long term weakness of the US economy, the result of a couple of decades of underfunding education, over paid CEO's, workers salaries and benefits unsustainably high in some industries (companies crushed under the weight of contracts & benefits for workers and retirees), the flight of manufacturing, false profits on investment bank casinos etc etc. .............as well as the fact that other countries have simply become more competitive.........

drlarrymitchell

Feb 16, 2009 4:16 AM CST

It's fun to ride the bubble- for a while- but sooner or later, everyone slips off.

Snowleopard

Feb 16, 2009 1:05 AM CST

I think a very very large part of the problem has been too low of interest rates and an over-reliance on credit. All that easy money drives up prices.

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debt • Paul Krugman • savings • market bubble • economy • Great Depression • Bernard Madoff

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