Krugman's "Smoot-Hawley Moment"

Bruce Krasting's picture


I'm constantly amazed at the things Paul Krugman has to say. This guy is on the top of the list of global economic thinkers. He has all of the credentials, and a huge platform to spin his views of what's good and bad, and what should be done next. PK's OpEd in the Times today is another example. (Link)

PK does a summary of Cyprus. I believe he has all of the facts straight, and I agree with him when he says:


Global capitalism is, arguably, on track to become substantially less global.


The broader story of Cyprus is about capital controls. It's not just the harsh new controls on the Island, it's all over Europe. There is not a country on the globe that has not established some form of controls the past few years. America has done it in subtle ways, using ZIRP, QE, Dodd-Frank and the Department of Justice to contain the free flow of money. I think a big clampdown in China on money is right around the corner. This trend scares the crap out of me. Krugman is on the other side of the spectrum. He loves capital controls. He wants to see more of them:


The bad old days when it wasn’t that easy to move lots of money across borders are looking pretty good.

"Looking pretty good?" OMG!


Given that big shots like Krugman want to see more controls of money, its a good bet that more controls will come. I think the likes of Krugman are ignoring the realities of 2013. They are doing so very much at the peril of the global economy.


The CIA keeps track of global cross border debt. The numbers are huge, and growing fast:

- Total World External Debt was $69T in 2012. In 2011 it was $63.6T. In one year it grew by $5.4T. World GDP growth was 3% while cross border debt rose by 8.5%.

- In 2004 World External Debt was $43T, or 65% of World GDP. In 2012 total External debt was 85% of GDP.

- The External Debt numbers for the USA are worth noting. Yes, 1995 is a long time ago, and the world is a different place today. I still find these results troubling:


external debt


In his typical style, Krugman establishes what is "true" and what is "false".


The truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.


Krugman's conclusion is that a cornerstone of global activity is a failed experiment and that the solution is to install more capital controls. Mr. K will get what he wants. More controls are coming - that's certain now. The entire house of cards that is Global GDP is at risk. The failed experiment that PK thinks is the rise in external debt, could easily morph into the failed experiment of the global economy.

I wonder if PK (and all the others who are pushing for more controls) are not having a "Smoot-Hawley Moment". In 1929 tariffs and other restrictions on trade were established. A global depression followed. In 2013 the tariffs and restrictions are on money, not goods. But if the result of those controls is a reduction (or even stability) of the external debt numbers, then the global economies will fall with it.

And this is what the world's "smartest" economist is calling for.



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Mark Urbo's picture

Krugman will be remembered as the Nobel idiot that lead the world into the Keynesian abyss...

He is an utter failure as an economic advisor.

PhilipAtticus's picture

Krugman is totally wrong about Cyprus anyway. He mistakes normal, legal international transactions by blue-chip companies and others for money laundering. The large majority of deposits in Cyprus are held by German shipping companies, Russia giants like Gazprom or Itera, and a huge number of British companies. In terms of Cyprus, he has no idea what he is talking about - he even messes up the tax code.

Eatabanker's picture

Ladies and Gentlemen of ZH,

Does anyone have suggestions on how to neutralize the sociopathic parasites robbing our collective and individual wealth and dismantiling our rights? 

What is the achilles heel of these predators? Let's pull the plug on their life support: Fiat/fractional reserve or is that

more accurately fictional reserve lending? Everyone here have some physica PMs? A teeny bit? 

Focus your justified anger into effective action. Better than howling at the moon. 

Setarcos's picture

Slight problem.

The "Achilles Heel" of the Washington/Wall Str global Empire is the Pentagon, CIA, etc. - i.e. enforcers of the PNAC/NWO.

Aside from eventual Empire over-reach from natural causes (same with all past empires) there is nothing to neutralize the psychopathic parasites running the world.

You are too generous to call them only sociopathic. 

css1971's picture

The problem is centralisation of power.

Credit centralises money in banks.

Centralised money in banks centralises power in banks.

Centralised banks buy politicians.

Centralised politicians have the credit and power to do what they like. Which mostly means perverting any existing system to the benefit of their backers.


The solution to centralisation is decentralisation. Think peer to peer. Person to person. No centralised authority involved.

So those are the characteristics of the solution, you can go choose your own. Just remember, if it has go through a centralised authority, any centralised authority of any kind, it is part of the problem not the solution.

tip e. canoe's picture

nice, but you forgot 

centralized energy

centralized food

centralized water

take those out of the equation and the game radically changes.  

the more effort we spend decentralizing ourselves and others in those variables, the less precious time we have to waste on deconstructing false syllogisms from high-paid tools like the Kroog and his Bretheren.

steveo77's picture

Shite, I never know Krug was a nobel or even respoected, but just reading his shite, I disagreed with 97% of it.


What a effen loser.

John_Coltrane's picture

The only things that ever improve the standard of living in societies are:

1)Free Trade (i.e. competition and meritocracy in goods and services)

2)Individual Property Rights and the Rule of Law

3)Advanced science and the resulting technology which leverages human labor by orders of magntitude.  This requires the unrestricted uncensored exchange of ideas.

Every anal retentive central planner like Krugman who fancies himself an "expert" hates all three of these principles despite centuries of history demonstrating their power to improve life for humans.  Closed, centrally controlled societies like North Korea or the ex-Soviet Union always fail.  Centralized power determined by "experts" is what Hayek warned against in his great tome, "the road to serfdom".


Sandmann's picture

So the McKinley Tariff 1890 was not instrumental in boosting Us manufacturing exports to Britain which had no tariff ? The Jones Act and restrictions on foreign ownership of US Media and Airlines, and import controls on Brazilian oranges or peanuts do not increase welfare in Florida, California, Georgia ? When will the US have free trade ?

are we there yet's picture

Paul Krugman bad
Ron Paul good

Controlled market bad
Free market good

Big crooked government bad
Small honest government good

Government by bankers and lobbyists bad
Government by citizens good

dunce's picture

Controlled capital is crippled capital, it can not go to where it will get the highest return and is misallocated. The idea that it will be deployed in any case but locally is a half truth. The owners will be concentrating on preserving capital rather than growing it. The result will be reduced national and world GDP. Krugmans direction is much like Archy Bunker to Edith,"stifle".

Sandmann's picture

So why does the USA prohibit Americans from investing in Non-SEC approved funds ? Why do disclaimers in the UK state that Americans are not permitted to invest, or why do European banks find it undesirable to have US depositors ?

pfairley's picture

Krugman was just on CNN with a chart showing 'debt to GDP' at about 80% now and only 90% until 2030....(vs Bruce Krastings' chart above of EXTERNAL debt to gdp at 102%)

 The only way we can make this all knowable by the american public is to put the statisicians in an Action movie 

css1971's picture

That's internal vs total government debt.

The various government agencies hold a couple of trillion of government debt. The total is ~100%. Krugman will argue that only the external debt matters because they can just cancel the internal debt... Except they can't.

dust to dust's picture

 I'll take Jim Grant over Krugman on the outcome of this Monetary fiasco. Bet Silver on Mr. Grant.

lamont cranston's picture

To put in the immortal words of one of Jay Ward's (creator of Rocky & Bullwinkle) lesser famous characters, Chumley the Walrus, "Duh, gee Tenneseee (Tuxedo), whut we goona do now?"

PK ranks righ up there with Chumley. And not the Chumley on the Vegas pawn shop show. That Chumley's much smarter, as he has to trade for a living. I'd like to see PK do what I do. He'd rather be ded first before eating Waffle House. 

Dull Care's picture

Shouldn't Krugman be looking for aliens?

Lmo Mutton's picture

So who is this Krugman guy and what does he do?

OccupyTVstations's picture

Probably the offspring of one of the 10,000 or so Nazis imported after WWII

knukles's picture

He's a genetically modified hunchbacked mentally challenged bacteria organism created from chemtrail residue and leftover goat smegma tailored in our most advanced bio labs to further the NWO's intellectual agenda as an alternative to Dancing With the Stars reruns and Survivor France which was cancelled when one of the contestants was run over on the Champs Elissee.

jon dough's picture

Hey, my goat lost some smegma...will wonders never cease.

I see the words "Smoot-Hawley" and I get kind of a Green Acres flashback with a touch of Deliverance and a smidgen of A Clockwork Orange.

I picture Der Kruger in a straw hat driving Bonny and Clyde's getaway car to the tune of Foggy Mountain Breakdown overdubbed with Dueling Banjos and The Ride of the Valkyries.

moneybots's picture

"PK is "smart" if you're in the Keynes camp."


Math doesn't care how smart PK thinks he is.  1+1 ALWAYS = 2.  PK says stimulus isn't big enough.  Well who says the housing bubble wasn't big enough or the Nasdaq bubble wasn't big enough?  Stimulus can never be big enough, which is why after QE 1 and 2 failed, QE3 is open ended.  QE3 won't work either.  When nasdaq stimulus ended, the Nasdaq crashed.  When hoiiusing stimulus ended, housing crashed. 

The Zimbabweans are all billionaires in their own currency.  Yet it did not get them out of poverty. 

steveo77's picture

Trillionaires dude, I have a $100T bill from big Z

Bought it for $4 USD

PubliusTacitus's picture

Fuck you Krugman. 

moneybots's picture

"The truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment."

The truth is that monetary and fiscal intervention is a failed experiment.   Krugman fails to accept the truth.

ozzzo's picture

As you follow the money, monetary and fiscal intervention begins to look like a successful experiment. If the goal is to make everything wonderful and restore the economy to 1950's one-worker-family bliss, or even take us back to the everyday lower/middle-class struggle to survive, then it failed miserably, but just suppose that the goal were to impoverish almost everyone, while enriching the top .01%?

tom's picture

Meh. Not convinced. That gross debt number will keep going up. PK's talking into the ether here.

TrustWho's picture

This is a geat read. This needs to be published, but how? As we learned today, the world CAN NOT HANDLE THE TRUTH!

nmewn's picture

"I believe he (Krugman) has all of the facts straight, and I agree with him when he says:

Global capitalism is, arguably, on track to become substantially less global."

Well yeah...he and his minions have spent the better part of their socialistic/fascist lives trying to destroy it. Its what socio-economics is...ideology interfering with economy.

You may agree with him in the reality of his statement but lets not fool ourselves that what we are witnessing capitalism. Free market capitalism would have shorted most of this shit into the dust within a day if they weren't protected by the state.

Socio-economics...trying to pick winners & losers with the taxpayers dime and still losing

Hedgetard55's picture



     Great insight but Bruce is a lefturd douche that cannot think. I love your insight though.

nmewn's picture

I'm workin on him...he'll come around I think.

If I had the chick in the red dress' phone number it'd be a done deal by now ;-)

kaiserhoff's picture

Hint:  He likes older women.

Crabshacker's picture

fucking double post...

Crabshacker's picture

After reading that, I only have 2 words......





Must be....KRUGMANS Day off!

malek's picture

This guy [Paul Krugman] is on the top of the list of global economic thinkers^H^H propagandists.

Fixed it for ya.

steve from virginia's picture




Krugman is an economist who ignores energy like most of his conventional contemporaries.


In this world there are few countries that can meet their own petroleum consumption internally: basically OPEC and a handful of others. The rest must import fuel by exporting (borrowed) funds. This includes the USA.


The USA also 'exports' funds -- and wastes petroleum -- by way of its military 'activities'.


The world now runs on the past ten-year increase in Russian fuel supply (IEA). That means exports and money flows to Russia and others. Higher fuel prices and more fuel consumption means increased money flows.


Because fuel supply has has plateaued, credit flows are bound to decrease. Russian plays are now peaking and headed toward irreversible decline. The alternative to allocating fuel by rationing access to credit is physical shortages. Depletion means rationed consumption and declining money flows.


When money flows slow down it is because fuel supplies are being diverted from one place to another or constrained ... generally by 'force majeure'. A good, recent example is 'Cyprus' which will obviously see less funding flows in the future. Ditto Egypt and Greece. Coming up are France, Japan, UK perhaps China.


What is occurring is a fact on the ground -- the effect of Peak Oil -- something that is taboo in policy discussions -- and energy conservation by other means.



The Second Rule's picture

Energy viz peak oil is the long, cold, hard look in the mirror that no one wants to see. Too many nights in the roadhouse...



Miles Kendig's picture

When Machiavelli's republic has vanished with expediencies fog the mercenary state that prevailed previously will seem a glimmering city upon a distant hill

Landrew's picture

Sorry Bruce, I always rate your articles as poor even when I agree with what you are saying at the moment in this article. It's hard to disagree with anything negative written about PK ha! When I know in your heart you hate working people and the social security TRUST fund they have THEIR money in. When in fact you should be hating the system that let CONgress borrow the money without BUDGETING for it! It's not the working people at fault it's CONgress! Ask my old friend DAVID STOCKMAN, he has his priorities right, hate the wrong doers!

little buddy buys the dips's picture

krugman needs to be strung up, too.

overmedicatedundersexed's picture

if the industry you worked in and the country you came from depend on expanded international trade and finance, I guess tariffs would not be high on list of good moves..however what is the phrase, coincidence is not always causality? the depression in America in the 30's got worse for many reasons, how much a change in tariffs add to it is doubtful to me the overreach of government and the Fed which caused credit and money to dried up along with higher taxes would seem much more strait forward misallocation of resources directed by big gov and big banks, kind of like today.

fatman51's picture


           what are your ideas? Return to the gold standard? This will fix everything?


If you are allowed to produce with labor that works for food, the market economy will collapse due to lack of demand. You can prop it up with debt for so long only. In the "West", we are there.

If you pull couple hundred million people out of agriculture in a span of couple decades, promise them better life onwhich promise you can not deliver, you create a menacing social problem. You can sit on this problem thruogh renewed promises, propaganda and repression only for so long.

So Bruce, how do you solve this equation with one size fits all global economy?

Bruce Krasting's picture

I don't think there is a "one size fits all" story here. There never was, never will be. A good example of a failed one size policy is the Euro. Spain can't link its economy to Germany's. Not for long at least. But that is what we have today.


To me, a gold standard is a very difficult concept to introduce today. A gold standard is the ultimate one size policy.


If Fiat money fails (it is the process of doing that) then there is a chance for some type of globalized exchange rate system. That system might have gold behind it. But things are going to have to fall right through the floor before that option is even considered.


You think the Bernankes of the world would allow a gold standard? Not a chance....

SmallerGovNow2's picture

Great post Bruce.  Keep up the good work...

GeoffreyT's picture

Nice post (fuck Krugman - he has done nothing of value since "The Myth of Asia's Miracle", which was an excellent paper in about 1994).


BUT (there's always a "but")... if "global external debt" is $69trillion (which, by the way, is less than the banknote I ordered off Amazon the other day), who is the debtor?

Total World External Debt must, when summed across all nations, be exactly zero. Otherwise we're borrowing from Mars or some shit.

Trust the CIA to fuck up something as simple as a calculation: sure, if you add up country B's holdings of's debt and country A's holding of's debt, you will eventually arrive at a suitably scary number. But in large part, those are offset by the fact that a claim by A over B is B's liability but A's asset.

It's the Notional vs net exposure issure. Sure, there is risk that some counterparties go to zero, but the joint risk that all counterparties go to zero, is as near to zero as makes no odds... it saddens me as an anarchist to say that, but as our American chums say: it is what it is - we will have states for a while yet, and degenerate parasitic megalomaniacal sociopaths will live in palaces at our expense and protect each other.

No wonder the CIA failed to foresee, disrupt or control the outcome of any non-CIA-caused geopolitical event of significance since their inception: quite apart from being dominated (after the bottom rung) with careerist political-triangulators and bullshit-artists, the stupid cunts can't do sums properly.