This is not a normal recession. This has the potential to turn real ugly. To put this in another perspective, I’m not sure what the unemployment rate was in 1929, but by the time FDR took office in 1933, it was at 25%. But that’s straight unemployment — there was no unemployment insurance back then. Today we have unemployment insurance, and the unemployment rate is calculated by seeing what percent of the population is on unemployment. But the insurance runs out. In other words, that 7.6% unemployment rate we see right now doesn’t take into account all the people who have been unemployed for a while, ran out of insurance, and still can’t find a job. So in terms of FDR’s era, where does that put our employment rate.. 10 percent? 12 percent? 12.5% would bring us halfway to what FDR faced going into office; but that 25% FDR saw was allowed to go during the Hoover administration since, in 1929, our economic problems (which, in an ironic parallel to today, were partly caused by a credit bubble due consumption beyond our means) were underestimated.

I’d rather err on the side of caution and overestimate our economic problems today. If we overspend and the economy gets back on track, then we’ll at least have the money to pay back the debt.

Regardless, because the outgoing Bush administration took on the mortgage backed security debts of Fannie Mae and Freddie Mac, the government will pay out trillions anyway — the Fed now owns all those shady flex-rate mortgages. So the government pays for each foreclosure, and the total debt Fannie and Freddie accrued is $5 trillion. If a $1 trillion, or even $2 trillion, stimulus plan is needed to create enough jobs to stop foreclosures, great — do it. Otherwise, the government will just pay $5 trillion in the future. Why nobody is discussing this facet of the story is beyond me because this makes any stimulus plan look like a bargain.

http://www.youtube.com/watch?v=1IXCf-y2mWg