This page has been archived and commenting is disabled.

Krugman Finally Wins the Argument

ilene's picture





 

Courtesy of John Rubino.

Today’s world can be summarized in two sentences:

Unless continuously fed with new credit, the global financial system will implode. And when confronted with this possibility, governments will always respond with new credit.

This has been true at least since the Long Term Capital Management collapse in 1998, and in the ensuing 14 years the global financial markets and the world’s governments have been partners in a dance in which crisis elicits monetary ease, which ignites an asset bubble, which bursts and elicits a new flood of credit. After each sequence the total amount of debt — and the system’s fragility — is even higher than before.

Through it all a few brave souls like Ron Paul have tried to stop the music and liquidate the debt, while other — far more numerous — authorities like New York Times columnist Paul Krugman have called for even more debt to produce higher inflation in order to liquidate the old debt. These worldviews — sound money to which the world must adapt versus flexible money that adapts to the needs of the economy — are mutually exclusive. Only one can win.

With all due respect to sound money advocates, there was never any doubt about the outcome. When voters suffer, governments armed with a printing press will always respond with easy money.

Today the debate ended. France has elected a socialist leader who will demand an end to austerity. The head of the European Central Bank has accepted that growth should henceforth take precedence over balanced budgets, and Fed chairman Ben Bernanke has made it clear that he’s ready to step in with more easing if necessary. Elections in Greece, Ireland and elsewhere will solidify this consensus.

So now begins the next, purely-inflationary stage of the process, in which governments and central banks abandon whatever restraints they once recognized and vow to do whatever it takes to put people back to work in the here-and-now. That means tax cuts, even bigger deficits, continued low interest rates and aggressive asset purchase programs.

Whether this “works”, i.e. whether the coming round of global devaluation produces higher employment with a minimum of instability, is an open question because we’ve never been here before.

No society in history has owed this much money, and the forces of global debt liquidation have never lost. Kondratieff Winter has never been bypassed and converted to Spring. But the world has never been armed with an unlimited printing press either. See The Long Wave Versus The Printing Press.

One thing that’s certain is that today’s tentative policies with one eye on deficits will soon be replaced by single-minded money printing, with a Krugman-esque goal of sustained 4% inflation. So now we know exactly what the world’s governments want. The question is, can they get it?

Visit John's Dollar Collapse blog here >

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 05/08/2012 - 11:46 | Link to Comment Lucky Guesst
Lucky Guesst's picture

double post

Tue, 05/08/2012 - 11:45 | Link to Comment Lucky Guesst
Lucky Guesst's picture

This too shall pass. The only question left for me is will they learn from our mistakes? We should be focussing on our children and teaching them what went wrong and how to fix it after the collapse. Oh and praying they have mercy on us when we are too old to protect ourselves from their wrath.

Tue, 05/08/2012 - 10:08 | Link to Comment Monk
Monk's picture

Actually, it was Ron Paul's song that went on for around four decades, leading to over a quadrillion in unregulated derivatives. Krugman's argument is icing on the cake.

 

Tue, 05/08/2012 - 10:06 | Link to Comment Shizzmoney
Shizzmoney's picture

Imagine if Al-Qaida on 9/11 rammed that plane into the Federal Reserve Building of NY, instead of the WTC?

Osama instead of dying in a Pakistani shack watching porn, could of became US President!

Tue, 05/08/2012 - 11:48 | Link to Comment Lucky Guesst
Lucky Guesst's picture

lol.... Imagine if that really was Osama in that shack, watching that porn.

Tue, 05/08/2012 - 08:37 | Link to Comment scragbaker a ca...
scragbaker a cape cod clamdigger's picture

Plenty of people had work in the KRUPP steel works in Weimar Germany as they pushed wheel barrow loads of cash to the grocery store. 

Tue, 05/08/2012 - 09:31 | Link to Comment spooz
spooz's picture

In a currency war its all relative.  If everybody else is easing, your currency doesn't necessarily depreciate.

Tue, 05/08/2012 - 14:20 | Link to Comment JeffB
JeffB's picture

It may seem stable relative to other currencies, but it will depreciate nonetheless.

It will depreciate relative to the goods you want to purchase. The price of gold may not be a perfect analogy, but it should be good enough.

You could buy a very nice suit for an ounce of gold 100 years ago, or 200 years ago. You couldn't possibly by even a shabby suit today for the dollars your grandfather buried in his back yard 100 years ago.

The dollar may be holding it's own relative to world markets, but when I was growing up we had dime stores where you could actually buy things for a dime. It also cost a dime to make calls on public telephones. Gas was something like 35 cents / gallon. The dollar has very obviously been losing value relative to goods and services as a whole, even though technology has been advancing rapidly. More efficient communications, travel and productions methods would be reducing the cost of things if the value of money itself was stable. That obviously is not the case.

 

Tue, 05/08/2012 - 08:34 | Link to Comment moneymutt
moneymutt's picture

Krugman has predicted more things correctly than most mainstream economists, but they are ultimately alll shills for bankers, including hard money folks. Do you really think Krugman is THE point man for the bankers, if he is, they should get better representation...

Too much money supply creates speculative asset inflation that tweaks economies towards unproductive things (housing bubbles etc). Too little money supply and you have high unemployment, deflation.

A good old fashion crash that wipes outs debt overhang via deflationary collapse is problably better for regular folks and general economy in the long term than bailing out bankers and never reducing debt....but the trick the bankers have us in is thinking that theses are the only two choices.

There are alternatives where money supply is managed to avoid high unemploupyement while also controlling speculative debt, limits booms and bust greatly only leaving to natural non-monetary issues (technology disruption, natural disasters, global shifts in demand, wars etc)

See economist Steven Keen, he argues with Krugman AND Krugmans enemies, Keen acknowledges debt, acknowledges the money supply created by fractional reserve banking but models how economies can avoid over indebting, while also avoiding crashes.

Tue, 05/08/2012 - 08:37 | Link to Comment moneymutt
moneymutt's picture

Dbl

Tue, 05/08/2012 - 08:35 | Link to Comment moneymutt
moneymutt's picture

Dbl

Tue, 05/08/2012 - 07:21 | Link to Comment masterinchancery
masterinchancery's picture

Krugman is merely a reflection of the fact that banker/looters have taken over the political world, and he is their mouthpiece. There is no argument, and no sane person thinks you can pyramid debt forever. And there cannot be a Kondratiev spring until the debt is expunged, so forget that.

Tue, 05/08/2012 - 04:53 | Link to Comment falak pema
falak pema's picture

The basic thesis of this article put so simply is irrefutable.

 

I am in agreement that if the WHOLE world buys into this argument we could go on playing this game until the marginal cost of each new fiat currency unit SURPASSES even when expressed in devalued fiat, NPV terms, the projected returns from the incremental cash injection. In which case the fiat perpetual machine grinds to a halt. But notwithstanding that systemic breakdown point there are other Political tipping points that could stop this runaway machine; like global empire secession. 

This current Pax Americana- First world trilateral construct, legacy of WW2,  INVITES through multilateral institutions that it controls like the IMF, WTO, UN etc. the NEW BRIC nations; which are creditor nations and do NOT have the same cultural or cumulative history of the WEST; to BUY into this construct.

With time, as the money machine goes more and more viral, and we are ALREADY there, these new players, who are NOT USA SURROGATES from WW2 days, will BUCK the ride and want to create their own EMPIRE and tell the WEST "screw your ponzi scheme" we are OUT. 

That is EVIDENT to anybody who has any sense as a likely issue to current runaway fiat hegemony imposed by PAX AMericana on a "we are making you an offer you can't refuse" basis. The Roman Empire, the Mongol Empire, all collapsed when internal unsustainability met the revolt of the people of the peripheral nations. 

It will happen. So the Krugman MANTRA which is totally PAX Americana centric, to SAVE the runaway fiat machine could/will break down EVEN before RIGOR MORTIS sets in through marginal return GRIDLOCK. 

Human political systems have inbuilt survival mechanisms and the BRIC elites and the world sheeple will revolt long before gridlock becomes the only way out. 

SYSTEM FAIL is written all over this line of reasoning; and it will be POLITICALLY motivated, as always. Not mechanical system failure of a sterile unified empire. No way. 

The ONLY argument that COULD give credance to this construct is that we are in transition MODE to a new civilization, to a new value system which will generate so much economic benefit in the future that the current debt will appear MINIMAL as the leverage we will attain will be so huge. Something like finding unlimited new ENERGY that is eco-friendly and allows us to better sustain human activity at quantum levels unknown to us today; aka zipping around the solar system and recolonising the solar system SPace. 

Such a technology led Renaissance Age could resolve this current conundrum and Krugman in his own "demented" way, as the new De Vinci, is pointing that way...Well that is a bet which the likes of Cristopher Columbus did achieve!

So I will NOT exclude such a miracle from the realm of the possible. Lets hope our Catholic Kings of today have a Cristopher and a Leonard up their sleeves! 

If not, we are in for Empire fail once again!

Tue, 05/08/2012 - 04:39 | Link to Comment merscrusher
merscrusher's picture

Since the money from the helicopters only falls into the financial markets and not main street, there will be almost zero inflation...except in some luxury market scenarios...

gold is cute, but for those wishing an a global fall, where and how exactly would one spend an ounce of gold...hm..would not using gold only create inflation...hmm..if I have some canned goods and you are starving...hmmm...yup that will be 1700 bux for those three progresso soup cans...how exactly do you trade it...and churchill took the world into the great depression by trying to put the pound back onto a gold standard...

And the US deficit is not all that it seems...go look up some commerce department information on employment based on size of firm...then do the math on the right side columns...notice something odd...how come the chart says the total GDP of american firms is 30 Trillion but the US GDP we are told is only about 15 trillion...seems American firms are spinning up alot of sales globally...gold is for those who are afraid...there is not enough gold to back any currency anywhere...the fall back position is owing US treasuries...and without a budget deficit...no treasuries to conform to Basel 3 capital requirements globally...

Wed, 05/09/2012 - 02:42 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Are you daft? Inflation is the money supply increase (confirmed) and Main Street feels it from every-day necessities getting expensive (confirmed) from the hot-money of the moving (velocity, confirmed) new monetary base (and expansion using fractional reserve, also confirmed).

Gas, oil, wheat, corn, rents in many markets and housing prices outside the USA in bubbles still not yet popped - all of this is being fed with hot money freshly printed (new inflationary pressure confirmed).

Gold is just ONE tangible asset among many to save. It happens to be very small vs purchasing power & doesn't rot, spill or get easily faked. That doesn't mean one should forego food, fuel or water storage much less other valuables like silver, copper, tools, lumber, and investing in a secondary location to live.

Tue, 05/08/2012 - 08:30 | Link to Comment AnAnonymous
AnAnonymous's picture

You know what about zero inflation?

It is cool because as mass production is kicking the bucket, inflation no longer requires inflationary monetary policy to be.

Tue, 05/08/2012 - 04:01 | Link to Comment taeonu
taeonu's picture

The problem with Krugman's theory is that he always ingores that increasing the money supply also increases debt at a faster rate since every dollar created is borrowed at interest.  If you borrow at a lower rate than inflation, you'll have a negative interest rate which will cancel the debt however this ignores the fact that creditors don't lend at low interest rates in high inflation environments.  So every new dollar you borrow will be at increasingly higher rates.  When money is debt and interest is the price of money/debt, they all inflate together.

Tue, 05/08/2012 - 03:32 | Link to Comment Walt D.
Walt D.'s picture

 

Krugman Finally Wins an Argument - PIIGS Fly?

 

Tue, 05/08/2012 - 01:29 | Link to Comment Plumplechook
Plumplechook's picture

Krugman ALWAYS gets it wrong.   Who could forget his ridiculous suggestion back in 2005 that America was in the midst of housing bubble that was about to burst with disastrous consequences for the US economy.

Thank goodness there were critics around like John Hinderaker to challenge him on this preposterous assertion.  From Hinderaker's Powerline blog in August 2005:

That Hissing Sound Is Krugman

It must be depressing to be Paul Krugman. No matter how well the economy performs, Krugman’s bitter vendetta against the Bush administration requires him to hunt for the black lining in a sky full of silvery clouds. With the economy now booming, what can Krugman possibly have to complain about? In today’s column, titled That Hissing Sound, Krugman says there is a housing bubble, and it’s about to burst:

Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn’t have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?
Now we’re starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone – not just those who own Zoned Zone real estate – should be worried.


Well, if we believed anything Krugman writes, we’d be worried all the time. Or at least until we have a Democratic administration, when everything will be rosy again. Krugman’s description of the housing bubble is amusing for what it reveals about how Krugman views the country:

 When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.
In Flatland, which occupies the middle of the country, it’s easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don’t really have traditional downtowns [
Ed.: Huh? I don't think Krugman gets out here much.], just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can’t even get started.
But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions – hence “zoned” – makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

 

I don’t doubt that some people in places like San Francisco and San Diego have paid too much for their houses. But it isn’t clear, and Krugman doesn’t even try to explain, why that constitutes a bubble or why level or declining home prices in selected areas around the country will somehow imperil the economy. Here are Krugman’s reasons for claiming that a housing bubble exists:

 

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller “Dow 36,000? are now among the most vocal proponents of the view that there is no housing bubble.

 

There are, of course, obvious differences between houses and stocks. Most people own only one house at a time, and transaction costs make it impractical to buy and sell houses the way you buy and sell stocks. Krugman thinks the fact that James Glassman doesn’t buy the bubble theory is evidence in its favor, but if you read Glassman’s article on the subject, you’ll see that he actually makes some of the same points that Krugman does. But he argues, persuasively in my view, that there is little reason to fear a catastrophic collapse in home prices.
Krugman will have to come up with something much better, I think, to cause many others to share his pessimism.


 

 

 

 

 

 

Tue, 05/08/2012 - 11:53 | Link to Comment JeffB
JeffB's picture

You fail to mention that 3 years prior to that column, Krugman was calling on the Fed to create a housing bubble.*  Then after they do so, he's saying, oh oh, we're relying on it too much and this could be trouble. Well, they followed his prescription to get to that point, and then he says the result could be a problem, but he offers no solutions. Did he recommend that the Fed tighten up a bit on monetary policy? Raise interest rates? Did he ask regulators to tighten lending standards or reserve requirements?

NO.

The only solutions he's ever proposed are easier money, lower interest rates and more deficit spending.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." Paul Krugman August 2, 2002

Tue, 05/08/2012 - 12:49 | Link to Comment AnAnonymous
AnAnonymous's picture

Was he advocating for a housing bubble and not simply stating the modus operandi here?

See the next line

"Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. "

Tue, 05/08/2012 - 18:16 | Link to Comment Plumplechook
Plumplechook's picture

Correct AnAnonymous - he was not 'advocating' a housing bubble but merely pointing out the obvious - i.e.  that Greenspan was attempting to engineer a housing a bubble in order to keep the economy afloat.   But it has become a standard rightwing talking point to take this quote of Krugman's out of context and suggest that Krugman himself considered a housing bubble a good idea.

Whenever you see someone making this claim against Krugman you know straight away they are arguing in bad faith.

Tue, 05/08/2012 - 22:35 | Link to Comment JeffB
JeffB's picture

Oh come on Plumplechook, who's doing the twisting of his clear words here?

If you read the whole article, he's clearly worried about a double dip recession, and agrees with those claiming we were heading into one, and that the way to avoid that would be to create a housing bubble.

The Christian Science Monitor had an article that examines his protestations in more depth.

If you take in even more context, he was calling for lower interest rates in an effort to induce consumers to spend more on housing all throughout 2001, leading up to the 2002 article when he specifically called for a housing bubble to offset the oncoming double dip recession due to the bursting of the NASDAQ bubble:

Krugman Did Cause the Housing Bubble

Your condescension and name calling are not logical arguments for your position that he meant the opposite of what he actually wrote, and had actively advocated for more than a year. In fact, ad hominem attacks are, of course, logical fallacies.

 

 

 

 

Tue, 05/08/2012 - 13:30 | Link to Comment JeffB
JeffB's picture

Yes, he was advocating a housing bubble. I don't think anyone reading that at the time would have interpreted it any other way. It's certainly consistent with his economic worldview, and with his current comments that the Fed isn't doing nearly enough QE and federal stimulus to keep us above water in light of the current collapsing/deflating bubble.

The Fed's modus operandi has been to blow one bubble after another in an attempt to keep us from going into recession. That's becoming increasingly harder to do, much as it becomes ever more difficult to keep an addict from crashing as the required doses get higher and higher.

Krugman still doesn't get it. Keeping the charade going in perpetuity is an impossibility. We're going to crash one way or another, and blowing ever bigger bubbles is only going to make the inevitable crash that much worse.

But the bottom line is that yes, he was advocating a continuation of the Fed's easy money, low interest rate stimulus policy back in 2005 when he said we needed a housing bubble to replace the earlier Nasdaq bubble, just has he has advocated the same policy ever since.

I guess as long as the puppet masters that gave him his Nobel Prize, and then named Bernanke the "Man of the Year" even after their absurd theories and actions helped lead and push us over the economic cliff want him to jump to their tune he'll jump.

Even he admitted how clueless he was in a rare bit of self reflection: How Did Economists Get It So Wrong? - NYTimes.com

Not that it made him reevaluate his absurd ideas, or at least change his public espousal of them.

 

Tue, 05/08/2012 - 08:34 | Link to Comment AnAnonymous
AnAnonymous's picture

That's some good laugh for sure.

Us citizens work in duos.

Tue, 05/08/2012 - 09:14 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

zzzzzzzzzzzz.........

 

Tue, 05/08/2012 - 00:28 | Link to Comment CitizenPete
CitizenPete's picture

Hmmm...   Keep stacking.  

Tue, 05/08/2012 - 00:24 | Link to Comment Yen Cross
Yen Cross's picture

 Nice " Headline" , Ilene!   After reading the post, I can say you weren't " drugged" by the Administration, over the weekend...

Tue, 05/08/2012 - 00:45 | Link to Comment hedgehog9999
hedgehog9999's picture

who the puck is Ilene?

typical of the kind crowd that follows Krugman

 

Tue, 05/08/2012 - 00:06 | Link to Comment RogueElephant
RogueElephant's picture

Krugman wins the argument? Today the debate ended? Because France elected a socialist leader? What a joke! 

BTW, France and "austerity" should not be used in the same sentence, in any case. According to the OECD, France never cut spending.  Their spending has continued to increase, every single year.

Know this, France now officially joins the list of TBTF's.  Who will pay for French profligacy? You will. You already are.

Mon, 05/07/2012 - 22:36 | Link to Comment JeffB
JeffB's picture

If an engineer makes an egregious error he loses his license. Ditto for an architect. Doctors, lawyers, insurance agents and many others can lose their licenses for gross negligence, and they all can be sued.

Too bad Krugman and his ilk don't need a license. The economic carnage they're causing, aiding and abetting may cause far more harm than a bridge that falls.

I wonder what the odds of collecting anything from them in lawsuits after the collapse are. I'm sure you'd get a lot better odds in Vegas, or even the market for that matter.

 

Tue, 05/08/2012 - 06:40 | Link to Comment cooperbry
cooperbry's picture

I think the sad thing is that the policies they're advocating could actually cause bridges to fall.

Mon, 05/07/2012 - 22:31 | Link to Comment Vince Clortho
Vince Clortho's picture

What a premature, vacuous statement. Nothing has been "won".  

 The table has just been set.  We are entering a stage that will provide a further testing ground for Krugman's utterings. Many contributors here on ZH already know the inevitable outcome of the Central Planners attempting to "solve" the problem with printing.  And there is a very serious reason why Bernanke has been adamant in keeping interest rates hovering near absolute zero.  The alternative would initiate a quantum change in the standard of living.

Krugman is a tool, and a rather dull one at that.  To cite this man as having 
"won" anything makes me question the credibility of the author of this piece. 

Tue, 05/08/2012 - 01:46 | Link to Comment jimmyjames
jimmyjames's picture

And there is a very serious reason why Bernanke has been adamant in keeping interest rates hovering near absolute zero.

***********

Yes there is a reason-which amounts to banks being able to borrow at zero-buy long and live off the spread-but Bernanke cannot control the long end-Greenspan couldn't and neither can anyone else-yields will rise and fall when the market says so-

http://bit.ly/s86T8y

Mon, 05/07/2012 - 22:46 | Link to Comment JeffB
JeffB's picture

I think he means Krugman and his ilk have won the battle as to whether to go forward with perpetual printing vs austerity. I get the impression the author thinks the odds are heavily stacked against them in the war, however, which is yet to be determined.

I agree with you, though, that I'd rather he showed the guts to just come out and say it's impossible for them to win the war with the tactics they're dead set on employing.

I think Evel Knievel had a better chance of successfully jumping the Grand Canyon on his motorcycle with a rocket attached than Krugman et. al. navigating a successful end to this crisis with their perpetual printing press.

I wouldn't mind if they tried their daredevil stunt on their own, but damn well don't appreciate being strapped to the back of their bike with the rest of humanity while they try it.

Mon, 05/07/2012 - 22:35 | Link to Comment Vince Clortho
Vince Clortho's picture

Flash to GW Bush declaring Victory on the deck of the Aircraft Carrier.

Tue, 05/08/2012 - 01:01 | Link to Comment mcguire
mcguire's picture

sound money will lose the war.  this much is certain.  it does not mean, however, that krugman/keynes wins the war.  the end game is a luciferian one world government.  and in this scenario, even though sound money loses, lucifer does too.. 

Tue, 05/08/2012 - 09:43 | Link to Comment Nukular Freedum
Nukular Freedum's picture

Keynesianism seems to favour consumption and speculation (capital destruction) over savings and investment (capital formation). The fact that no-one seems to agree what Keynesianism actually IS (thereby allowing them to differ from my earlier characterisation) is another still more fatal point against it.
 In reality Keyenesianism is the attempt to describe and justify the central planning (via money-supply) of a modern, otherwise capitalist economy. The justification being that inefficiencies naturally enter the system and need correcting for.
 But this is a craven solution. The correct model for a genuine economist to follow is to describe and support free-markets in all areas (including money supply and interest rates) and to speak up against any and every abuse that seems to threaten the tendency of free-markets to clear. But instead the Keynesians attack Say’s law, throw out the entire body of neo-classical economics and then justify ever more bizarre interventions in the money-supply/velocity of money, thereby making themselves an increasingly major part of the problem. Hardly the behaviour of responsible or even genuine economists.
And the reason they succeed with this nonsense is because it usually supports (by some divine chance) the interests of politicians as they seek re-election.

Mon, 05/07/2012 - 22:19 | Link to Comment nah
nah's picture

this time its different bitchez

Mon, 05/07/2012 - 22:03 | Link to Comment hedgehog9999
hedgehog9999's picture

This is all fine and dandy but Kruger's argument fails or falls apart as we now know the diminishing effect of any additional lending on the economy as GNP increases would be negative or at best growing very slowly as a result of opening the spigots. Pls see Japan as an example were lending has continued unabated for 20+ years with minimal results in terms of economic growth. In any event the resulting inflation would negate any gains obtained anyway.

If on the other hand money is freely given away to people in some form (additional subsidies, government salary increases, tax refunds, etc,) ,  it would certainly wipe out the debts faster but huge inflation would follow wth an acceleration of the reduction of the standard of living for all countries who choose this path. Pls see Mexico, Argentina and others who have done this.....

The fact is there is no easy answer , pay now, pay a bit later or pay on an ongoing basis for a long time , whatever choice is made it will have a detrimental effect in one way or another.......

The party's been gooing for a long time, the recovery hangover will be proportionally  longer ..... a few bloody mary's and a beer might feel good the morning after the party but the final hangover will be longer and more painful.......

Our politicians and bankers need to drink a lot more to appreciate this fact of life!!!!!!!!!

Cheers!!

Mon, 05/07/2012 - 21:56 | Link to Comment adr
adr's picture

Wow, it's arguing with idiots time again. Krugman is right? Ha.

True massive inflation can allow debts to be paid off in short order. If I have $100k in debt and hyperinflation turns a cup of coffee into a $500k purchase, it must be pretty easy to pay off $100k. The argument assumes earnings rise substantially. Instead of being paid $50k a year that person would be seeing multiples of millions coming into their bank account. That $250k mortgage you signed is now like a piece of penny candy.

Due to masive inflation, your house is now worth over a billion dollars giving you a massive asset to borrow against. Everyone should be praying for a loose money hyperinflative enviroment.

The problem is the kind of inflation loose central bank policy creates first is hard commodity inflation. Before bread goes to $1 million a loaf, flour goes to $10 million a bag. Oil goes to $50 million per barrel, iron skyrockets, etc. Although old debts can be erased, new debts are piled on faster than ever.

Although $140 trillion in unfunded liabilities seem to no longer be a worry if hyper inflation drives the money supply far past that number, it doesn't take care of the new liabilities piling on the septillions or whatever larger number it becomes. Instead of $1200 a month for retirees, you're paying $10 billion. Everything goes up. Deficits while larger in monetary terms, stay the same or become even larger in percentage terms. Instead of being 20% of a persons budget, food will most likely rise to 40 or 50%, even though income will be substantially higher. Yes you may make a quadrillion a year, but you are actually worse off.

That massive asset that appreciated in value, actually isn't worth squat. Everyone is trying to sell their home to pay for food, nobody is buying. Besides if you did want to buy another home, it costs $18 googleplex. In total reality, you're fucked. Inflation destroys wealth, it doesn't create it. The likes of Krugman can't understand this fact because their DNA is defective and prevents their brains from comprehending simple concepts.

Deflation creates wealth because it destroys the behemoth of central government and the massive cancerous tumor of bloated corporatism. It lowers the cost of essential commodities and actually allows for more income to be made of the lower cost of operations. Individual purchasing power is increased and the concept of the economy of scale is less important. Individuals could once again compete and would perhaps do a better job at producing value from less, than the masive centrally planned corporation. The waste that trived on inflation would suffer under the crushing burden of its own inefficiency.

Deflation scares the shit out of the elite because it destroys the value of worthless paper assets and rewards the production of essential consumable goods. Something any child of Wall Street could never produce. So no, Krugman isn't right and will never be right. Printing debt to pay for debt will never eliminate debt.

Mon, 05/07/2012 - 22:10 | Link to Comment hedgehog9999
hedgehog9999's picture

Well said my friend!!!!! I fully agree, pls see my post below which essentially says the same!!

 

Hedgehog9999

 

Krugman and all like him are stupid irrelevant morons......

I can't believe the kind of traction they get with their twisted, faulty and I will say fraudulent arguments!

Mon, 05/07/2012 - 21:56 | Link to Comment The Alarmist
The Alarmist's picture

We should hope that policy makers achieve 4% inflation ... my money, unfortunately, is on them exceeding their expectations in a big way.

Mon, 05/07/2012 - 21:35 | Link to Comment SeattleBruce
SeattleBruce's picture

'Whether this “works”'

 

Hey John, study this chart and get back to us on whether the jury's out about debt saturation.  The further they go down this rabbit hole the worse it'll get.

http://economicedge.blogspot.com/2010/03/most-important-chart-of-century...

Mon, 05/07/2012 - 21:33 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Krugman will be a drip on the dick of history - wasted protein, not even worth a footnote. Ron Paul will be remembered for the courage of his convictions, clarity in matters of government and finance. Oh, and for having integrity - a four letter word to Krugman.

Mon, 05/07/2012 - 21:59 | Link to Comment The Alarmist
The Alarmist's picture

Ron Paul will, unfortunately, be lucky to be as remembered for his call for sound money as William Jennings Bryan is remembered for his Cross of Gold speech.

Mon, 05/07/2012 - 21:26 | Link to Comment razorthin
razorthin's picture

Death wins

I borrowed that from Zero Hedge

Mon, 05/07/2012 - 21:22 | Link to Comment GernB
GernB's picture

Or...

Prechter wins.

The socialist leader in France and other counties will be politically unable to come to any agreement on how to balance their budgets. One could argue that's why they were elected, to stop the attempts to balance their budgets. Bond yields will explode as it becomes clear the counties are now unable to solve their fiscal problems. Germany and without them the European central banks will be unwilling or unable to agree to unlimited money printing with no plan for the counties to become solvent. Regardless of what Bernanke says in public he is not the Fed and the various members of the Fed will come under intense political pressure not to continue funding insolvent states with no plan for them to ever become solvent. Unable to balance their budgets and therefore unable to convince anyone to lend them money Euro zone countries will start to go bankrupt and/or leave the Eurozone. This will force them into some form of austerity because nobody will lend them money. The result will be a massive contraction, not inflation.

I'm not saying that's what will happen, because I don't know. However, I think it is very far from a foregone conclusion that the reckless will continue to fund the irresponsible indefinitely with no plan to ever solve the problem. All agreements in the past have made funds contingent upon troubled countries being able to solve their debt problems (at least on paper) and now they have just made the politically impossible. Hence there will be no more bail outs.

Mon, 05/07/2012 - 21:24 | Link to Comment socalbeach
socalbeach's picture

Krugman didn't win anything since he and Ron Paul weren't arguing about what France or any other country would do.  They were arguing about the costs and benefits of money printing (tripling of the monetary base in about 4 years by the Federal Reserve) vs sound or commodity money which increases at a much smaller rate (~2%/year for gold).

Mon, 05/07/2012 - 20:56 | Link to Comment bankruptcylawyer
bankruptcylawyer's picture

excellent and cogent piece. 

but you maybe forgot to get to the point. 

shit sucks. deal with it.

Do NOT follow this link or you will be banned from the site!