Paul Versus Joe

Bruce Krasting's picture




Paul Krugman (PK) and Joe Scarborough (JS) have been having an on-air feud of late. The issue is debt, spending and inflation . The two have been going at each other on their blogs: Here, Here, Here and Here.

The bottom line is that PK thinks debt is no problem at all; nothing should be done with spending, and absolutely nothing should be done with America's entitlement programs. JS, sees it differently. He points to the country's $60T of unfunded liabilities, another decade of trillion dollar deficits and the very real chance that high inflation is the outcome.


Atlantic magazine (Egad!) has jumped into this fray with both feet (Link). The folks at Atlantic love PK, and they too see no problems at all. The Mag did its best to take JS down with his silly concerns.




In defense of its position, The Atlantic offered up the following chart on the 10-year TIPS implied forecast for inflation:




The Atlantic had this to say about the market's inflation outlook:


Core PCE inflation averaged 1.9 percent over this period, while 10-year breakevens, which tell us market expectations of future inflation, averaged 2.18 percent.


Yes, inflation expectations averaged 2.18%, but the only relevant question is - What are those expectations today?" The TIPS spread is now pricing in 2.56% inflation (15% above the ten-year average) The folks at Atlantic looked at the TIPS info and concluded:


If markets feared future inflation in the face of mounting debt, they sure had a funny way of showing it.


I look at the TIPS chart and come away with a different take than the Atlantic. What I see isn't so "funny". We are approaching the highs for the past decade. The past few years have seen a steady increase in expectations. If you drew a trend line for the past two years, it would point you to an upside breakout for inflation expectations.


What is the main factor pushing up inflation expectations? It's the Fed, of course. The stated policy of Bernanke to increase inflation. The Fed is currently at Full Speed with money creation. There is no end in sight for QE and ZIRP. It's not just the US that is pushing the inflation button. Japan and England have an oar in this water. China is on a tear. I think the EU is not far away from its own QE experiment. Yet the Atlantic concludes the opposite.


The Atlantic should know that it's foolish to Fight the Fed. The Fed is going to win; higher inflation is a sure thing. The TIPS market is the best indication of this. I think it's the Atlantic that could use a lesson on markets and the economy.





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steveo77's picture

Better  Kruggerand than a Krugman

The Heart's picture

Bah humbug!

Hedge food?

Fred Hayek's picture

This is the same Paul Krugman who back circa 2002 pleaded for the Fed to create a housing bubble, literally a housing bubble, to help pull the U.S. out of recession. The bubble that was created, as per his desire, ended up destroying or crippling larges swaths of the U.S. economy. I'm sure he'd try to backpedal and say he didn't want the banks to commit titanic amounts of fraud. But when you plead for a huge part of the economy to be overvalued, your pleading for misallocation of capital and practically begging for fraud to take place.

His present call for ignoring the future implications of a policy is similar to that childish call to do something that's temporarily pleasant a decade ago. How do guys like him and James Fallows who, in 1989 just before the Nikkei crashed, predicted Japan would nearly take over the world, how do they retain their jobs while being stupendously wrong?

lasvegaspersona's picture

salvation is permaculture and gold

Fred Hayek's picture

And silver and thorium powered molten salt nuclear reactors.

Stud Duck's picture

In the 1980's we had a Fed Chairman, Paul Volker, who decided that inflation was a problem (they factored food and oil then) and sent interest to 20%. It crippled the ag sector for decades, Now the ag sector is booming and the most valuable asset this country has relative to the rest of the world.  Now all the family farmers are gone and large corporate farms will export hugh priced food while the poor starve. Sort of teminds you of Ireland in the mid 1800's. 

Tijuana Donkey Show's picture

The Irish didn't have guns. Now we do, good luck exporting all of that.

RagnarDanneskjold's picture

No inflation here today folks. Nothing to see. Move along. Markets are 100% accurate in their forecasts and have never surprised anyone. Go home and watch some TV, but not that JS dodo who has no economics Phd.

MrBoompi's picture

I'm not sure Krugman believes the debt is no problem, he just believes employment and growth are more important to the American people at this juncture. He may also believe something else that I happen to believe, that the economy requires more debt, so it should be put to better use than just lining rich guys pockets.

Manic by Proxy's picture

The economy requires more debt? To state such drivel in a public forum either means you're quite brave, or abysmally stupid. You are probably both. Your clear adulation of Krugman gives your bona vides as stupid. And exactly what is to be put to better use "than just lining rich guys pockets". Debt? The economy? What? Please explain your trenchant wit.

steve from virginia's picture




Good grief! America needs better economists.


Economiss is more like it! Swing and a miss ...


If longer bonds are bid up in price there is no more appreciation to be had and rates are minuscule. Any/all yields are in the past. That's not a 'bond call' but common sense. There is no place for bonds to go but down.


There are other risks to bonds besides inflation: duration mismatches for instance. With opaque derivatives markets it is hard to know if hedges are solutions or a (massive) problem.


The entire US Treasury market is like a large plate spinning on top of a very tall, skinny pole.


Krug doesn't grasp diminished returns. $100 tn more debt will not produce anywhere near $100 tn in GDP. Maybe fifty cents ... maybe negative GDP ... as was the case Q4!


Meanwhile, there is diminishing private sector lending to the government, if that isn't a gigantic red flag there is no such thing as a red flag.


The same time the Fed is driving out the private sector lenders it's making explicit guarantees of bank deposits (liabilities) of $40+ BILLION every SINGLE MONTH. Why is Bernanke guaranteeing bank deposits? Is there something about the banks we should know about?


Bernanke is also making $40+ billion guarantees of mortgage securities. Somehow this is supposed to indicate a healthy mortage market and a real estate 'recovery'. Instead it is another red flag, that the entire market is on life support.


These dudes are going to be in real trouble when the markets unwind ... no more bullets in the magazine, only flags.





cynicalskeptic's picture

Official inflation numbers are totally bogus.  Anything referncing them is meaningless.  TIPS are a joke because they use the vastly understated inflation numbers.

REAL inflation is at least DOUBLE the official number.  The official Fed policy of pursuing '2%' inflation is laughable because that meast at least 5%.

Your money is losing value at a rapid pace between inflation and the 0% interest you're collecting on any savings.

IamtheREALmario's picture

I am in San Diego this week and took a look at one of those old fashioned things called a "map". Geeze, but there are a lot of military installations and things dedicated to past and present military here?

The more I think about it, the degradation of society and therefore likely the degradation of the human soul is not so much about what we have, but what we do to get it. In that respect neither Paul nor Joe have it right. They are talking about the wrong thing.  It is not where the money comes from (if money is a vehicle to get the things we need), it is what we do to get the money that matters. The happiest people and nations are not those that are the wealthiest or have the most things. It is the people and nation that at the end of the day can look in the mirror and think, I/we really worked hard and accomplished something of value.

"Work keeps us from three great evils: boredom, vice and need." from Candide by Voltaire

Obviously, if people do not have work and instead have too much liesure, they are bored, fill their time with vice and often have needs that they require to be filled by others for them to survive. It is for this reason more than others that employment is a requisite of a stable society (and lack of work makes it unstable) and healthy psychie. Most likely it does not matter what the work is. It follows then that those who seek liesure seek the loss of themselves. Pity the parasites for they can never be happy with themselves. I am a happy slave and am not worried about people taking things from me, certainly not money, because they do not understand the things that make me happy.

the grateful unemployed's picture

i've been in SD a lot more weeks, and i can say most of those military installations are mothballed, including a great deal of that rather large piece of real estate at Camp Pendelton. (the Marines lost their share of mission statement during Iraq, and Afghanistan)  they train in 29 palms pretty much. the RE market is redhot! homes at 1 million or more!! so the 1% will come here [romney has a home in La Jolla!] but you sound like you would fit right in, as many do, with little but the sunshine, the water, and the open city.

TruthInSunshine's picture

I lived in an enclave of San Diego for 5 years.

Only those who have lived and worked amongst a military & defense contractor corridor/area can appreciate how spectactularly the American Taxpayer is getting reamed relentlessly in the ass by spending that is so wasteful that it would make Bernie Madoff angry.

world_debt_slave's picture

In the '80's as a lowly E-5 supply Petty Officer for my division, I was told to spend our whole budget every time, even if I didn't need it, that way we would not lose our budget.

orez65's picture

This article is not about what makes people happy, who cares?

Heck, a masochist is happy with pain!

It is about "thou shall not steal".

Krugman is a criminal.

He argues that "theft" is ok.

US dollars are not money, they are pieces of paper signed by a government bureaucrat.

They have value but it is being systematically destroyed by the Federal Reserve's countefeiting.

A financial system which is built on theft will collapse. That's the problem.

orez65's picture

This article is not about what makes people happy, who cares?

Heck, a masochist is happy with pain!

It is about "thou shall not steal".

Krugman is a criminal.

He argues that "theft" is ok.

US dollars are not money, they are pieces of paper signed by a government bureaucrat.

They have value but it is being systematically destroyed by the Federal Reserve's countefeiting.

A financial system which is built on theft will collapse. That's the problem.

Go Tribe's picture

You nailed it. Look at all the government and monetary policies aimed at providing "things". Better to help provide work and let people find what they love to do.

New_Meat's picture

"Paul" vs. "Joe"

Bruce, ya gotta' be kidding all of us.

Joe has no ability (nor inclination) to articulate anything au contraire avec paul.

and Mika serves to kill anything non-keynsian.


- Ned

Although it seems that you are accurately reporting the views of those in the path of "super storm sandy"  How's that working out for all y'all?


world_debt_slave's picture

From the headline I thought it was Joe six pack.

jonjon831983's picture

Debt is no problem... as long as somebody wants it:

"Ugliest Danish Banks Find No Buyers in Toxic Asset Trap"

Sutton's picture

Doesn't Ben monetize TIPS?

The biggest crimes are done in broad daylight.

Don't abolish the Fed. Exterminate it.

kaiserhoff's picture

The Atlantic hasn't had anything sensible to say since the cover displayed those wonderful seasonal water colors..., seems like a hundred years ago.  They never knew a damn thing about economics.  It was an OK literary rag, until they sold their soul to the Devil and began the usual Marxist political crap.

I remember a series of painfully stupid pieces about what the IMF and World Bank were doing to Peru, Paraguay and such.  Shit that would bore a buzzard to death. 

They are dying, Bruce, like all the New York, Jew run hate media.  May they rot in hell.

disabledvet's picture

"Roots of Muslim Rage." I'll never forget the article or the cover. Had to have been...thirty years ago? Long way back. It's no surprise that they're backing The Kroogman. "Keynes was right when it concerned the War. was true with the Americans." And many on this side of the Atlantic still pine for the Keynsian "bliss" that was World War II vis a vis the USA. For the record "Freedom ain't free" is the best expression ever. Besides here where are all those freedom talkers anyways?

the grateful unemployed's picture

i have to agree with you, and a TIP is a note. the principle is not at risk, but people also buy them for the same reason they buy gold, its a decent hedge against deflation. its not hard to imagine asset deflation with a constant or rising CPI. if the CPI were to go nominally to say 3.5% thats a 75% premium to short term paper at 2%. the FED will be more than happy to keep rates below CPI for an extended period, (to prevent money velocity from going to zero) as long as they can keep those numbers low. if deflation really takes hold they will surcharge notes. CPI won't come down as fast as rates, which is backdoor inflation, the kind you have when wages and personal income collapse, but the Fed props up home prices to protect their MBS paper. more (or is that less) to come

which way western man's picture

The Atlantic is a subversive "jewish" publication dedicated to the destruction of any and all vestiges of America

Most assuredly White America

They are a true Fifth Column that should be dealt with via massive truckbombs

Downtoolong's picture

I find it sarcastically hilarious that anyone would use TIPS to demonstrate successful economic policy, since TIPS now guarantee loss in purchasing power of your money for up to 10 years duration, and that’s before the government taxes you on the phony phantom inflationary income and the bogus CPI index that it’s based on. What a joke these people are.

Now, if they told me Krugman was actually a homeless man claiming he was a leading economist, that I would believe.

the grateful unemployed's picture

pay attention to what Bruce is saying, its the spread between CPI (expectations) and ZIRP dominated rate structure. with the Fed inflating assets, these expectations (even at a premium of 15%) are pinned way too low, and at no risk to your priniciple ? (Bernanke does not like TIPS, does he dislike them enough to discontinue them?) 

andrewp111's picture

Bernanke can't discontinue TIPS, but the Treasury Secy can. Bernanke is buying nearly the entire issue of TIPS anyway, so what's the problem?

the grateful unemployed's picture

i agree with you to a point, which is this, what is the collateral damage he is doing to inflation expectations. but the inflation argument is DOA, its deflation they fear, and deflation with even modest price inflation will make their job difficult. one rule of thumb is do the opposite of where the FED is trying to direct money [riskier assets in this case] and you can chase the stock market but all you're going to get is the rate of monetary inflation, with plenty of downside risk. the best advice in the 30's was take your money out of the bank and bury it in your back yard. no financial adviser will ever repeat that, but its true.

Assetman's picture

Here's something more to think about...

QE's 1 and 2 were initiated when 10-year breakeven trends were clearly on their way towards zero.

With the announcment of QE 3 this past fall, 10-year breakevens were bumping up against those mutli-year highs of 2.5%.  This is a clear departure from previous policy.

The FOMC isn't necessarily fearing imminent deflation... they're opening the liquidity gates in order to get to higher nominal GDP growth and allowing inflation to run (if they're successful).  They're essentially targeting one 'convenient' mandate (employment), while temporarily ignoring the other (stable prices).

Obviously for them, it's the lesser of two evils... and us peons really have no say in the matter.

I just wish the direction towards which they directed that liquidity was put to more efficient use.


Winston Churchill's picture

Most homeless are down on their luck,whereas Krugman is down  on his knees,

and thoroughly enjoying it.

New_Meat's picture

winnie, might give you "most" but counter with "significant others are taking advantage.

I'm with Ben Franklin on this.

- Ned

{here in the Commonwealth, especially after Granny Warren's election, the fallout is that >20% of the welfare recipients are fraudulent.  That would be on the face of their applications.

- Ned

Manic by Proxy's picture

Warren is native American and therefore above reproach. Move along.

TruthInSunshine's picture

+1 on the point about TIPS. What a fraud of a construct and vehicle....

As to Krugman, he's quite good at exercising a selective memory and getting his disciples/cult (literal) to pay no heed to and/or forget his catastrophic prognostications of his past (recent and distant).

For the well-intentioned amongst us, who wish to see honesty in all things, including economic debate, prevail, I suggest comparing and contrasting Paul Krugman & Karl Gunnar Myrdal to see how economists are far more helpful when they're not so dogmatic (as is the case regarding Myrdal's contributions, since he wasn't so hopelessy tied down to some rigid construct).

Rewinding The Tape On Paul Krugman

In my last post, I should have perhaps included this revealing (given his current denial of the effects of budget deficits on interest rates) from one of his 2004 columns:


"For many years, advocates of tax cuts have insisted that the normal laws of supply and demand don't apply to the bond market, and that government borrowing — unlike borrowing by families or businesses — doesn't affect interest rates. But there's no argument among serious, nonideological economists. For example, a textbook by Gregory Mankiw, now the president's chief economist, declares — in italics — that "when the government reduces national saving by running a budget deficit, the interest rate rises."


Krugman was entirely right about that "there's no argument among serious, nonideological economists" part (Though it is incorrect to suggest that all advocates of tax cuts believe in that or that only advocates of tax cuts believe it(he himself is an example of that)). It's too bad that he has however revealed himself to be anything but [a]"serious, nonideological economist".


Via Lew Rockwell, I also see another interesting quote from Krugman, from 2002.


"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."


If you think the quote has been taken out of context, do read the entire article. It is clear there that the only misgiving he expresses about the strategy of creating a housing bubble is that he doubted (incorrectly, as everyone now presumably knows) that it would be possible to create the allegedly desirable housing bubble.


The now experienced effects of Krugman's 2002 policy recommendation should give you a hint of the effects of Krugman's current policy recomendations.

UPDATE: Now Krugman tries to spin his way out from the latter quote, writing:

"Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened."


That excuse is simply not plausible. Is Krugman saying that he, a man renowned for advocating Keynesian recession-fighting policies, saying that he opposed a policy he thought was needed to fight a recession? Give me a break.


While he may not have formally written "I advocate it", he didn't in any way suggest that it would be undesirable, and given his known preference of advocating policies that reduces the severity of recession in the short-term, he can't argue that he didn't advocate a policy that would do so by saying it would do so, unless he specifically argued against it.

NotApplicable's picture


Why oh why do people bother rebutting sophists? Is everyone really this stupid?

Krugman's name should elicit nothing but laughter when mentioned, but no, people are too dumb to do that, instead choosing to engage his ideas, which only gives them credibility (regardless if they're "destroyed" by logic).

Never wrestle with pigs! NEVER!!!!

I wonder, would Mr. Karlsson refute Hulk Hogan's economic rants? Of course not. Yet, IMO, Krugman is a far bigger clown than Hogan, yet Karlsson 's not smart enough to dismiss him as a charlatan and be done with the subject.

Anyone who engages him only further empowers him. Why? Because he's not practicing economics, but sophistry. His audience will not bother to read any rebuttals that discredit him, as they could've already done that with their own reading, had they cared.

I swear, some days I feel like I'm the only one paying attention.

New_Meat's picture


"Why oh why do people bother rebutting sophists? Is everyone really this stupid?"

well, how would you answer that question?  I'd even challenge the assembled multitude to answer the question:

"what is a sophist?"

I'm now going to pop the popcorn and will return to be entirely entertained!


- Ned

Orly's picture

Sophists are a bunch of naked guys waxing poetic.


Dr. Sandi's picture

Now if they were just a bunch of naked guys hot waxing poetic, then you'd have a show!

Economics Brazilian style.

New_Meat's picture

however, you, sir, have established your credentials as a learned poster.

q99x2's picture

Krugman looks like he had his teeth pulled for better action.

bjfish's picture

Joe is a sell-out and PK is quite simply a partisan hack and a liberal fruitcake. 

Our society is economically illiterate.

So, what's new?

the grateful unemployed's picture

"liberal fruitcake"?? someone needs to read the big book of cliches for some new ideas

Diamond Jim's picture

what an idiot....we might as well add to the list of blame for everything as follows: George Bush, climate change, aliens and Jews. What is wrong with you ? Your hate and several others found on this website is unconscionable. It oozes from you and needs to be dealt with...either by cyanide or a therapist.