Paul Krugman: From Hype to Fear

The unemployment report on Friday was brutally bad. Unemployment rose in December, while job creation was minimal — and it’s highly likely, for technical reasons, that the job number will be revised down, showing an actual decline in employment.

It’s the latest piece of bad news about an economy in which the employment situation has actually been deteriorating for the past year. It’s no longer possible to hope that the effects of the housing slump will remain “contained,” as one of 2007’s buzzwords had it. The levees have been breached, and the repercussions of the housing crisis are spreading across the economy as a whole.