It's Too Soon for Feds to Ease Up on Economy

If Washington cuts off the cash, recession will worsen: Krugman
By Kevin Spak,  Newser Staff
Posted Jun 15, 2009 9:42 AM CDT

(Newser) – With critics prematurely calling on Washington to scale back financial rescue efforts, economic history fans see “déjà vu all over again,” writes Paul Krugman in the New York Times. This is the third time a major economy has been stuck in a liquidity trap, and both previous times these same calls for restraint have been heeded—with disastrous results.

The New Deal sparked growth until 1937, but after the Fed tightened rates and FDR tried to balance the budget, the economy slumped again. Japan met the same fate in 1997. Today, unemployment is still rising, and “we’re not even experiencing the kind of growth that led to the big mistakes of 1937 and 1997,” Krugman argues. “It’s way too soon to declare victory.” (Read more Paul Krugman stories.)

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