The Headless Horsemen

With job losses soaring, the stock market crashing, and now even commercial banks like Citigroup nearing failure, this is a really, really bad time to have almost no political leadership worth a damn. Paul Krugman delivers the sobering tale about the last interregnum with a potentially catastrophic effect on the global economy.

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now.

It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days.

How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

This is absolutely frightening, especially because we're headed into the holiday shopping season, which retail banks on every year, and if it craters as much as expected, you're just going to see massive layoffs.

There isn't much room to just whistle past the graveyard and hope an Obama Administration can make it all better come January 20. Dammit, somebody on Capitol Hill has to lead. We don't have the time to waste.