Paul Krugman's disturbing analysis of our economy

I've been very disturbed by the stagnation in our economy. Fortunately, I'm not an expert, so I can ignore the problems, hoping they will go away. Well Paul Krugman is an expert, and his analysis of parallels between our economy and Japan's is scary:

Mind the Gap Back when I first got professionally obsessed with Japan's problems, around four years ago, I made myself a mental checklist of reasons that Japan's decade of stagnation could not happen to the United States. It went like this:

1. The Fed has plenty of room to cut interest rates, which should be enough to deal with any eventuality.

2. The U.S. long-term budget position is very strong, so there's plenty of room for fiscal stimulus in the unlikely event interest rate cuts aren't enough.

3. We don't have to worry about an Asian-style loss of confidence in our business sector, because we have excellent corporate governance.

4. We may have a stock bubble, but we don't have a real estate bubble.

I've now had to strike the first three items off my list, and I'm getting worried about the fourth.

More and more people are using the B-word about the housing market. A recent analysis by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

I was a senior (excuse me, fourth year student) at UVa when we had the last stock market collapse in 1987. I remember many people unable to find jobs that took advantage of their education and skills throughout the late 80s and early 90s. It took us well into the Clinton administration to really recover from the collapse of the Reagan bubble. I am afraid that it could be a long time before we recover from the collapse of the Clinton Bubble. President Hoover, er, Bush isn't helping.