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Marketwatch

WASHINGTON (MarketWatch) - The great recession of 2008 and 2009 is likely to be not only the longest downturn since World War II, but also the most geographically widespread recession since at least the 1970s.

For the first time on record, all 50 states were contracting at the same time, according to the state coincident indicators for February released by the Federal Reserve Bank of Philadelphia on Tuesday. The state-by-state indicators have been tracked by economists at the bank since 1979.

Marketwatch

Brazilian President Says Credit Crisis Caused by 'White People With Blue Eyes'

White Peoples Fault

Brazil's President, while meeting with British Prime Minister Gordon Brown Thursday, said the global financial crisis was caused by "white people with blue eyes."

Quantitative easing

Everyone knows a shiny new bridge when they see one. Quantitative easing, on the other hand, has been a mystery to all but hardened anoraks until zero interest rates started to loom late last year. Policymakers worldwide now pin their hopes on quantitative easing’s ability to complement traditional fiscal stimuli as a means of boosting demand.

Easing

Fed Moves

The Federal Reserve on Wednesday stunned investors by announcing plans to buy $300bn of US government debt, rocking the bond market and the dollar.

In a further display of aggression, the Fed also said it was more than doubling its purchases of securities issued by housing giants Fannie Mae and Freddie Macto $1,450bn in a bid to bring down mortgage rates and support the housing market

Even though the Fannie and Freddie purchases are much larger in size, it was the plan to buy Treasuries that caught investors by surprise. The last time the Fed attempted to bring down yields on long-term securities was during the ill-fated Operation Twist in the 1960s.

Fed Moves

Inflation making a comeback?

Rising inflation expectations, rather than deflation, is the new fear. Warren Buffett – the man who said the US economy had “fallen off a cliff” – believes inflation could return to 1970s levels. Jim Rogers – the man who said the UK was “finished” – expects much the same. Pimco, the bond fund, sees similar risks.

Markets for now don’t seem too worried. Interest rates have collapsed, central banks may be printing money and governments such as the UK’s heading for their largest ever peacetime deficits. But break-even rates, the yield difference between inflation-linked government bonds and normal government paper, have risen only slightly since last year’s trough. At about 1 per cent in the US and the UK, they are near historical lows. Most economists feel the risks of doing too little in the fight against deflation are greater than the possibility of a build-up of inflationary pressure in a year or so.

Making a comeback?

Where Did AIG's Money Go To?

AIG's collapse caused a lot of pain, but its bailout package offered sweet relief for some.

After months of stonewalling, government-controlledAmerican International Group (nyse: AIG - news -people ) finally revealed the names of the counterparties that were funneled $108 billion in taxpayer funds. The largest recipients of AIG bailout funds were European banks, Wall Street firms and, to a lesser degree, municipal governments.

Where did it go?

China's Worried.

Speaking ahead of a meeting of finance ministers and bankers this weekend in London to lay the groundwork for next month’s G20 summit, Mr. Wen said he was “worried” about China’s holdings of United States Treasury bonds and other debt, and that China was watching economic developments in the United States closely.

“President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,” Mr. Wen said. “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”

Definitely Worried

Summers says - crisis is ending.

Lawrence Summers, President Obama’s top economics adviser, said this morning that he saw early signs that the economic crisis was beginning to ease. But he emphasized that the crisis would not end anytime soon.

Mr. Summers seemed to have three main goals in his talk, which was delivered at the Brookings Institution in Washington. The first was arguing that the Obama administration was sufficiently focused on the financial crisis. The second was connecting its longer-term plans, like an overhaul of the health-care system, to the resolution of the crisis. And the third was projecting confidence that the crisis would indeed end.

“Our problems were not made in a day or a month or a year, and they will not be solved quickly,” Mr. Summers said. “But there is one enduring lesson of the history of financial crises: they all end.”

Summers on the crisis.

The FT's Excellent-The Future of Capitalism

Excellent.

Ivory Tower Unswayed by Crashing Economy

For years economists who have challenged free market theory have been the Rodney Dangerfields of the profession. Often ignored or belittled because they questioned the orthodoxy, they say, they have been shut out of many economics departments and the most prestigious economics journals. They got no respect.

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John Maynard Keynes advocated government intervention in the economy.

Related

Times Topics: Credit Crisis — The Essentials

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Gary Settle/The New York Times

Milton Friedman championed the free market.

unswayed

That was before last fall’s crash took the economics establishment by surprise. Since then the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks. A Newsweek cover last month declared, “We Are All Socialists Now.” And at the latest annual meeting of the American Economic Association, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said, “The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking.”