Ed – I have a feeling that you and I thought things were already insane 15 months ago. All we’ve done is swap one bout of insanity with another in typical (and not unanticipated) muddle-through denial of the decline of the developed economies over the last 20-odd years.

Despite many possible complications (not excluding Iran), expect more of the same sort of stuff (despite talk of exit strategies, and not excluding negative interest rates or even more esoteric, as-yet undreamt-of fun & games) until the desperately hoped-for arrival of a knight on a white charger – perhaps powered by ubiquitously cheap solar cells!

P.S. reading your comments here, I guess it doesn’t take a genius to see how you might/might not be voting on your poll!

They enabled the blowing up of this huge and disastrous debt bubble through their enabling of politicians’ greedy and irresponsible spending and their trampling of common sense in the general populace.

Many people knew, without having economic degrees, that it was unsustainable and foolish, but they were derided as uneducated, unsophisticated rubes who “just didn’t get it.” And many just threw in the towel and joined the debt orgy, making it all that much worse. And of course the thieves and con artists on Wall Street and elsewhere in the financial sector just licked their chops as they were given full rein to fleece the world.

These dangerous academics, like Krugman, need to be soundly discredited before causing more damage. Alas I don’t think we’ll get there without a huge damaging washout of our economy when the debt house of cards finally collapses from it’s own weight and instability. Ponzi indeed.

Now how about SS and Medicare? Ugh.

This is also what mortgage modifications are about. The McMansions you point to were about consumption, not investment. Now that prices have stopped galloping ahead, this is more readily apparent.

Two objections:

(1) the increase in debt was Ponzi debt, or speculative debt, that is, debt that could not be serviced by the output of the asset that was bought. MacMansions, securities based on MacMansions. Debt that creates its stream of earnings, such as can be got very easily in the energy and conservation arena with a higher (real world) carbon price, is not debt that should be avoided. This is productive debt. And there are other examples.

(2) Less consumption of private consumer goods, yes. But to expect this mountain of debt to go away by just hunkering down is wrong. Capitalism has the peculiar need for investment. But the more critical point is that the mountain of debt has to be attacked directly, by writing it down and letting the creditors share the poverty. There is no recovery in a share-cropper economy.

After reading Barron’s interview with Koo, I do not sense any real belief in a positive outcome. It is pretty clear we are in the early stages of a massive experiment.

His most recent post-Keynesian perspective on what will likely happen going forward in given at the end of his New Year’s blog posting.

As to your last bit “less consumption, more savings and less debt” that was the problem – all the money was going on the housing Ponzi scheme. Don’t forget that one man’s consumption is another man’s production – and I don’t think that we have been ‘over-producing’ in the last ten years.