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Krugman's "Smoot-Hawley Moment"
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:
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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I'm fine with that statement as long as we're clear PK is a Manchurian Candidate of the economic order, i.e., he gets no orders or direction from the elite. He is a gear and ratchet mechanism within the clockwork. He works entirely off cues and thus knows exactly what to say without being told.
It's the same way as in any major corporation. You rise to a directorship or C-Suite position not because you follow orders, but because you understand the "unwritten" orders by deciphering the subtext of the company mission statement.
Because he is a mouthpiece, and the ultimate insider..., spouting trial balloons for the criminal class in Washington.
Maybe for the same reason that they gawk at traffic accidents?
Those that pay attention to PK don't have boating accidents
Those hoping for him to have a boating accident pay too much in taxes.
Also true, and funnier.
If the struggling, peripheral countries are ever going to heal, they will need outside capital after whatever necessary restructuring and repair operations get underway.
Where will this capital come from if so many controls get imposed?
"... struggling, peripheral countries" do not need external Capital. Capital is for one is debt for another. Struggling peripheral countries need economic reform.
great point x2
YES!! YES!! YES!!
You get it! You really do get it!!!
http://www.polyconomics.com/index.php?option=com_content&view=article&id...
CW
"I still find these results troubling"
Tis merely a flesh wound Bruce..
More proof that an idiot remains an idiot no matter how many times he opens his mouth...
"This guy is on the top of the list of global economic thinkers" - Yes, and a nobel to boot. Tell us Bruce, how many people have been killed by American drone strikes since the Commander in Chief won his nobel? In a just society, the likes of Krugman would be the first to meet the guillotine. fraud remains the status quo for now...
Somebody wake me up when Paul Krudman advocates any monetary, financial or economic policy which does NOT increase the power of government, or which does NOT otherwise centralize authority and power in the hands of an unaccountable (and demonstrably self-serving, sociopathic) elite.
Krugman is the meritocracy/oligarchy PhDork bitch lap dog and slurps from the lap
The rub lies in that when the government shrinks and regulation eases these same sociopaths will still be in control. Think it's hard to compete now?
The government will start a war to keep from shrinking.
Here we are discussing the other side of the "hot money" coin. "Hot money" in emergiing market circles means fair weather capital that comes in on a sunny day and flees en masse when it rains. In the Asian crisis, the IMF insisted that capital controls could not be enacted by the Asean countries.
How perfectly ironic that the the same prohibited tactics are now being entertainedin Europe.
The hypocrisy never ends.
What was all this so called "hot money" dong in Cyprus anyway? Arms dealers, drug traffikers, terrorist financiers, offshore tax havens? What, honest investors decided this was a secure place to stash money? C'mon. Not buying it.
Russians. Everything is so corrupt and messed up in Russia, as mentioned in a previous article, so much paperwork and bribes, it is much easier for ordinary middle class citizens to go on a vacation to Cyprus, and setup banking there.
As also mentioned, Russia and Cyprus have bilateral agreements that your investments - equities, bonds, etc - that you have in a Cyprus account is not taxed by Russia, so you only pay one low tax rate.
Many people with small businesses, large farms, or any one of means (millionaires and hundred thousandaires) benefited by using Cyprus banking rather than in their home Russia.
Oh but it's getting very close.
It will backfire anyway. Capital controls cut both ways. As soon as investors realize that Cyprus is a "roach motel", there won't be any inflows of any kind. Investors will shun Cyprus altogether.
My issue with Krugman is that during the heady days of Robert Rubin's ill-advised (for the US) but excellent strong dollar policy (for CITI, GS, JPM and anyone else with Asian investments) he had numerous screeds defending the "free global markets." Apparently, no one realized that Asian countries declared mercantilist war against US manufacturers. So when both the AFL-CIO and the national Association of Manufactureres petitioned Congress for relief from this idiotic policy, the answer was something like: "Just wait, we are entering the New Economy." Now having second thoughts, perhaps becuase he realizes future economic history grad students will use him as a poster boy for the Grand Delusion of the 90's. Meanwhile, given the corruption in the US banking system at the highest levels, any capital controls put in place would only apply to the "99%." And so it goes.
He's a tool for tptb, writing in the Official Organ of the Leviathan, to further any meme du jour.
Cunt
Step 1: Globalism (eliminate jobs and middle class)
Step 2: ?
Step 3: Profits!
"I'm constantly amazed at the things Paul Krugman has to say."
I stopped right there. Bruce, hang it up. No one here pays the slightest attention to what Kruggy says or does.
Duh.
Thanks for the input.
When you say "here" I assume you mean ZH. About 1% of all readers leave a comment. Possibly all of those in the 1% agree with you. (I doubt that)
From the correspondence I get outside of comments, and other feedback like Twitter subscribers etc. I can tell you that a fair numbers of ZH readers work in finance. That is their day job, and they want to read what is being said. ZH is a go-to place for news these days.
Journalists (and wannabe journalists like me) read ZH. Paul Krugman reads ZH (that's why I did this).
Politicians read ZH. Not just in the USA. All over. The Fed, Treasury, CBO, OMB,CRE etc. all read ZH. The foreign central banks monitor what is up here. The White House and the CIA follow this site. (The fact that I mention CIA makes it sure they are reading) There is valuable intelligence here. Alternate views of the status quo, and yes, some of the comments.
It's that 99% that I'm trying to hit. I'm sorry that does not include you.
bk
@Bruce, I think you've got Krugman nailed but think about where the puck is going, not where it is.
Here's tomorrow's "conventional wisdom of the elites" today:
I cite the recent writings of Izabella Kaminska at FT Alphaville in particular. Also Matt Yglesias. They don't come right out and say so but this is where it's all going.
No wonder DHS keeps buying more bullets...
All those folks come here? Oh man, I guess I should go put some pants on...
Let them fly.
10 green triangles for you, sir. Thanks for the chuckle
Who pays for you to post here every day?
You writin a book?
Koch Brothers, Pete Peterson, CIA, FBI, Home land Security, Social Security Administration, CBO are my regulars. Bernanke slips me a couple of bucks now and then. (I never took money from Timmy Geithner-but Jack Lew has already called). The Swiss National Bank makes regular transfers to my (very) private Swiss account. All the banks and brokers chip in too. The SEC has me on retainer.
The corporates don't pay me. They just give me stuff. The article I wrote that trashed Fisker? I got a car for that one. GE is always sending me stuff - I got a wind turbine just the other day. Basically, everyone is laying out for me, I'm just a shill.
Zip, Nada, Zero is what I really get.
bk
Bruce,
I am confident that you get plenty of joy from sharing your insight and opinions with us. Like many ZHers, I appreciate your efforts and always look forward to reading your articles. You get me to think differently and I like your style. I mostly agree with your ideas but not always and that is OK. Thank you for posting and keep up the good work!
Dan
p.s. I work in the financial industry but it is a big industry with many different parts and this website has taught me so much. There are many great commenters (and few stinkers) that make this a good site to learn from but it takes thick skin sometimes and that is OK with me.
Do you get it here too, ? this is Zero Hedge.
Ok Bruce, stop it. You caused a spraying of diet coke all over my screen. Kudos to the amazing amount of your coverage on Cyprus ( even the first one where I disagreed with almost everything you said).
I knew the Koch brothers were behind ZH!!111!!!1!!!!!
I lol'd! I can haz turbine?
4-Sale on Ebay - make a bid.....
I think the point was that when we stop hearing from PK, that's when things will start to get better.
Nope. Economists like Krugman only come on stage when the system has entered the collapse phase. Things like capital controls are one of the clear signs you have begun the endgame. I think Krasting has that right.
The problem is that's NOT the way Washington works...
Yeah, the established fascist plutocracy pays and promotes it preferred professional liars. Then, they give each other immaculately hypocritical awards, for being such excellent professional liars. Since frauds backed by the force of governments are the most profitable things that can be done, there is then plenty more money available to pay and promote those preferred professional liars to tell even bigger lies.
The State and the high priests have always worked in symbiosis to legitimize each other.
"The State and the high priests have always worked in symbiosis to legitimize each other"
this phrase is more profound than most think, the origins of the concept of state and nation are indeed religious
religion holds peoples that are not familiar to each other to a common cause, be it for charity or building pyramids or entertaining a priestly class (or even promoting commerce by establishing a temple to Venus where all local women were required to work for a set period as religious prostitutes - so that merchants from all over had an additional reason to come - and use the public baths, first, a religiously mandated obligation to public hygiene necessary to enter the city) or establishing healing centers
only after a "priestly class" has shaped a common ideology or religion (or peace between religions) a warlord can use it for military actions, from defence to attack and propagation of a civilization
without a common "ideas pool" you have usually tribes in small villages that can't exceed their "natural" size - commerce is possible under those conditions, but it's done by heavily armed entrepreneurs that roam in caravans or ships and are prone to switch between merchant and pirate mode, depending from the size of the "customer" (this is the origin of all commercial thinking, btw, and so of liberalism and so also of libertarianism: opportunity)
Rome was founded on a religious, "gods-given" alliance of three tribes, which then expanded to fourteen, for example - though based on the religious freedom of each tribe, something the early Christians really disliked
America also shaped a common pool of ideas, ideals and morals so that it became a nation - note the use of God's blessing in many "national invocations" - a priestly act that is required from the highest magistrate of the land
seen this way, Krugman is indeed something like a priest - his ideology gives him the "power of illuminating the future" - the romans would have called him an Augur - a man that can tell you if an action will have a positive or negative effect in the future, aka "giving auspices"
the same applies here in europe with the pro-european movements and "ideologies", preaching peace between nations through commerce and peaceful cooperation - it's a sentiment and a fervent wish... that has little difference from a prayer
My friends usual screen name is PKtown. This was made when he was trying to create his Porn King website
I was about to say something similar but you summed it up more succinctly. I have two talking points:
1) Economics is not a science. At best it's a form of sociology, and at worst it is a form of religion, complete with high priests like Krugman.
2) Governments care more about preserving themselves than they do the welfare of the general population. The creedo of government is "We must exist beyond all else." When the system is strong there is a healthy, symbiotic relationship between govt and the middle class. When the system breaks down (as it clearly is now) government cannibalizes the middle class and forms a symbiotic relationship with the high priests, banks, corporations, and propaganda outlets.
This endgame scenarios is like the island castaway eating his own legs--he has opted for a very short term survival strategy.
+ a zillion
The little peckerhead has become rich in his quest to destroy the system
Parasite