When it comes to the apocalypse, Krugman likes to have his apocalyptic cake and eat it too. Krugman says that the recent concern about “debts and deficits” was a “false alarm.” He attempts to paint those who were concerned about the debt crisis as scare mongers. He sarcastically says that “the debt apocalypse has been called off.”
Professor Krugman is at it again - conjuring fairy tales about a benign long-term fiscal outlook. Notwithstanding that the public debt has surged from 40% to 75% of GDP during the six short years since 2008, he claims there is no reason to fret and that there is no debt spiral anywhere in the future. In part that’s because the Keynesian priesthood has declared that interest rates have down-shifted on a permanent basis. Under a regime of even modest monetary normalization over the next quarter century, current fiscal policy will lead to interest rates that are far higher, not lower, than the growth rate of nominal income. So its time to put Greece right back into the front and center of the US fiscal picture.
Paul Krugman reads the latest long-term forecast from the US Congressional Budget Office (CBO) and he likes what he sees. Even though the chart below is the CBO’s projections for the growth of federal debt, described by CBO as "a path that would ultimately be unsustainable," Krugman nonetheless offers a rosy commentary...
"Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself." – From The Economist, July 16, 2009.
Mainstream economists continue to dominate their profession and wield huge influence on public policies. They merely needed to close ranks after the financial crisis and wait for people to forget that their key theories and models were wholly discredited. Meanwhile, heterodox economists who stress credit market risks and financial fragilities – the Austrians, the Minskyites – remain stuck on the fringes of the field. It doesn’t much matter that the crisis validated their thinking. Nonetheless, we’ll continue to explain why we think a shake-up is overdue...“Mythbusting” the theories of mainstream economists.
Paul Krugman is at it again – distorting or misinterpreting work by other economists to attack critics of today’s central bank driven low interest rate environment and to defend policy status quo or to push for even more stimulus.
It is fortunate that Paul Krugman writes a column for New York Times readers who want the party line sans all the economist jargon and regression equations. So here is the plain English gospel straight from the Keynesian oracle: The US economy is actually a giant bathtub which is constantly springing leaks. Accordingly, the route to prosperity everywhere and always is for agencies of the state - especially its central banking branch - to pump “demand” back into the bathtub until its full to the brim. Simple.
The boom is unsustainable. Investment and consumption are higher than they would have been in the absence of monetary intervention. As asset bubbles inflate, yields increase, but so do inflation expectations. To dampen inflation expectations, the Fed withdraws stimulus. As soon as asset prices start to fall, yields on heavily leveraged assets are negative. As asset prices decline, increasingly more investors are underwater. Loan defaults rise as mortgage payments adjust up with rising interest rates. When asset bubbles pop, the boom becomes the bust.
In Reality, War Will Bring An End to the Petrodollar, and Impose Hardship on the Average American ...
The Great Depression did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression - absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions. Instead, the Great Depression was a unique historical occurrence - the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking. But ironically, the “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens - Keynesian economics and monetary central planning. Together, these two doctrines eroded and eventually destroyed the great policy barrier - that is, the old-time religion of balanced budgets - that had kept America a relatively peaceful Republic until 1914. The good Ben (Franklin that is) said,” Sir you have a Republic if you can keep it”. We apparently haven’t.
By now everyone knows there is an unprecedented student debt bubble, amounting to well over $1 trillion and rising at a rate of nearly $200 billion per year. However, what is far less known, is what all these hundreds of billions in government loan proceeds are being spent on. The following two charts should shed some light on this all important matter just how Government money goes from Point A to Point B, using indebted to the hilt students as a pass-thru.
Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.
Now that Q2 is not shaping up to be much better than Q1, other, mostly climatic, excuses have arisen: such as El Nino, the California drought, and even suggestions that, gasp, as a result of the Fed's endless meddling in the economy, the terminal growth rate of the world has been permanently lowered to 2% or lower. What is sadder for economists, even formerly respectable ones, is that overnight it was none other than Tyler Cowen who, writing in the New York Times, came up with yet another theory to explain the "continuing slowness of economic growth in high-income economies." In his own words: "An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace." That's right - blame it on the lack of war!
Anyone reading the regular Federal Open Market Committee press releases can easily envision Chairman Yellen and the Federal Reserve team at the economic controls, carefully adjusting the economy’s price level and employment numbers. The dashboard of macroeconomic data is vigilantly monitored while the monetary switches, accelerators, and other devices are constantly tweaked, all in order to “foster maximum employment and price stability." The Federal Reserve believes increasing the money supply spurs economic growth, and that such growth, if too strong, will in turn cause price inflation. But if the monetary expansion slows, economic growth may stall and unemployment will rise. So the dilemma can only be solved with a constant iterative process: monetary growth is continuously adjusted until a delicate balance exists between price inflation and unemployment. This faulty reasoning finds its empirical justification in the Phillips curve. Like many Keynesian artifacts, its legacy governs policy long after it has been rendered defunct.
We have a few things to say about the recent debunking of established monetary theories. Effectively, the BoE joined forces with the rebels in economics who’ve long argued that standard models are bunk. Moreover, the BoE’s report discredits many well-known pundits, some more so than others. We’ll pick on one from the “more so” category: Paul Krugman.
The US economy is a house of cards. Every aspect of it is fraudulent, and the illusion of recovery is created with fraudulent statistics. American capitalism itself is an illusion. However, Washington has unique subjects. Americans will take endless abuse and blame some outside government for their predicament – Iraq, Afghanistan, Libya, China, Russia. Such an insouciant and passive people are ideal targets for looting, and their economy, hollowed-out by looting, is a house of cards.