Paul Krugman was interviewed by Reuters yesterday, and provided a pretty gloomy assessment:

A deeper plunge in the already battered U.S. dollar is another possible route to crisis, the professor said.

The absence of any mention of currencies in a communique from the Group of 20 rich and emerging market countries this past weekend only reinforced investors’ perception that the United States, while saying it promotes a strong dollar, is willing to let its currency slide further.

“The break can come either from the Reserve Bank of China deciding it has enough dollars, thank you, or from private investors saying ‘I’m going to take a speculative bet on a dollar plunge,’ which then ends up being a self-fulfilling prophecy,” Krugman opined. “Both scenarios are pretty unnerving.”

In the longer-term, Bush’s version of social security reform, which Krugman says would relegate pensions for the elderly to the whims of volatile financial markets, could have wide-ranging implications for future generations.

But at least there’s an upside:

“I do believe at some point there is going to be a popular tidal wave against what has happened,” concluded Krugman. “In the meantime, you keep banging on the drum, you keep telling the truth.

“And then eventually we have the great demonstrations, which I think are important to let the government know that many Americans are not happy with what is happening,” he said.

This, the same week that the administration’s ideas for its second-term tax plan come out. The highlights: eliminate investment income taxes by removing the deduction for state and local taxes, and “scrapping the business tax deduction for employer-provided health insurance”. Unbelievable.

As MaxSpeak points out, the former amounts — coincidentally, I’m sure — to a tax on the blue states:

The income tax deduction chiefly benefits blue states. Texas and Florida, just to take two wildly random examples, have no state income tax. In the most recent tax legislation, a new tax cut was added for state sales taxes, ostensibly to put states with no income tax on the same footing as the others. Now that they are equalized in this way, the stage is set to remove both deductions simultaneously. What could be more fair?

The health insurance one leaves me somewhat speechless. Where was that during the domestic policy part of the debates? Salon [truthout has full text for non-subscribers] opines persuasively on the likely impact (hint: in 2008 Kerry or whomever will have an even bigger number of recently uninsured for the stump).

  One Response to “Paul Krugman: “We’ve become a banana republic””

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