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By PAUL KRUGMAN
Released: April 16, 2009
Ben Bernanke, the Federal Reserve chairman, sees”green shoots”
President Obama sees”glimmers of hope” Along with the stock market was
on a rip.

So is it time to sound the all clear? Below are four reasons to become
careful about the economic outlook.

1. Things are still getting worse. Industrial production only hit a
10-year low. Housing starts remain incredibly feeble. Foreclosures,
which dipped as mortgage companies waited for details of the Obama
adminiion's housing plans, are slumping.

The most you can say is there are stered signs that things are
becoming worse more slowly -- that the market isn't plunging quite as
fast as it had been. And I really do mean stered: the latest edition of this
Beige Book, the Fed's regular survey of business conditions, reports
that”five of the twelve noted that a moderation in the rate of
decline.” Whoopee.

2. Some of the good news isn't convincing. The largest positive news
in recent times has come from banks, which are announcing
surprisingly excellent earnings. But a few of those earnings reports seem a
bit... funny.

Wells Fargo, for instance, announced its best quarterly earnings ever.
However a bank's reported earnings aren't a hard number, such as earnings; for
instance, they depend a lot on how many bank sets aside to cover
expected future losses on its loans. And some analysts expressed
considerable doubt about Wells Fargo's premises, as well as other
accounting issues.

Meanwhile, Goldman Sachs announced a huge leap in profits from
fourth-quarter 2008 into first-quarter 2009. But as analysts fast
noticed, Goldman altered its definition of”quarter” (in response to a
change in its legal standing ), so that I kid you not -- that the month of
December, which was a poor one for the bank, disappeared
from this contrast.

I don't wish to go overboard . Maybe the banks really have swung
from heavy losses to hefty profits in record time. But skepticism comes
naturally in this era of Madoff.

Oh, and for those hoping the Treasury Department's”stress tests”
to make everything clear: the White House spokesman, Robert Gibbs,
claims that”you may notice in a systematic and coordinated way the
transparency of determining and showing to all involved some of the
results of these stress tests” No, I don't know what that means,
either.

3. There can be other shoes yet to fall. In the Great Depression,
matters didn't head back down. There was, in particular, a pause in
the dip about a year and a half -- roughly where we are now. But
afterward came a string of bank failures on either side of the Atlantic,
combined with a few disastrous policy moves as nations tried to
defend the perishing gold standard, along with the world market fell off the other
cliff.

Can this occur again? Well, commercial property is coming apart in
that the se, credit card declines are soaring and nobody knows yet only
how bad things will get in Japan or Eastern Europe. We probably won't
repeat the disaster of 1931, but it is far from certain that the worst
is over.

4. Even when it is over, it will not be over. The 2001 recession
formally lasted just eight months, ending in November of that year.
But unemployment kept climbing for another year and a half. The identical
thing occurred following the 1990-91 recession. And there's every reason
to believe it will happen this time also. Don't be shocked if
unemployment keeps rising right through 2010.

Why? ”V-shaped” recoveries, where occupation comes roaring back,
take place just when there's a lot of pent-up demand. Back in 1982, for
instance, home was crushed by high interest rates, so when the Fed
eased up, home sales jumped. That is not what is happening this time:
nowadays, the market is depressed, broadly speaking, since we ran
too much debt and built too many shopping malls, and nobody else is at the
mood for a new burst of paying.

Employment will gradually recover -- it always does. But it likely
will not happen fast.

So now that I have everyone miserable, what is the answer? Persistence.

History shows that among the fantastic policy dangers, in the surface of a
serious economic downturn, is premature desperation. F.D.R. responded to
signals of recovery by cutting the Works Progress Adminiion in half
and increasing taxation; the Great Depression promptly returned in full
force. Japan slackened its efforts halfway through its missing decade,
assuring another five years of stagnation.

The Obama adminiion's economists know this. They state all
the right things about staying the course. But there's a true risk
that all of the talk of green shoots and glimmers will strain a dangerous
complacency.

So here is my advice, to the public and policy makers alike: Don't
count your recoveries before they're hatched[/font]