'Krugman's Kryptonite' Pedro Schwartz On Creating Money Out Of Thin Air

Tyler Durden's picture

"A serious inflationary disaster will only be prevented if governments succeed in reducing their deficits and stop selling bonds" is how the infamous destroyer of Krugman, Pedro Schwartz, describes the dangerous 'tennis match' being played between The Fed and The ECB. In an excellent interview with GoldMoney's James Turk, the Spanish 'Austrian' economist talks about bank regulation, the creation of money out of thin air, and the beauty of a trult free market system. From fictional reserve lending to the fragility (and boom-bust cycles) of our financial system, the mild-mannered 'Keynesian-Krusher' concludes that "there has to be a change in social mentality - so that people realize that nothing is free, and the government has to shrink."


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TruthInSunshine's picture


Paul Krugman, the Self-Contradicting Economist



Below is a collection of actual quotes from Paul Krugman with links to sources. The quotes are arranged by topic and are in pairs (with an additional quote in one case), with the two quotes in a pair making arguments for contradictory positions.


Minimum wage and unemployment Would cutting the minimum wage raise employment? - New York Times, Dec 16, 2009

...the belief that lower wages would raise overall employment rests on a fallacy of composition. In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary.


Training touted to close widening wage gap - Milwaukee Journal Sentinel, page 8A - Feb 6, 1996


Stanford University economist Paul Krugman, however, said raising the minimum wage and lowering barriers to union organization would carry a trade-off --- increased unemployment.


Institutional finance: Bad banks


1998 interview of Krugman - Business Standard (India)


Close the weak banks and impose serious capital requirements on the strong ones...You see, it may sound hard-hearted, but you cannot keep unsound financial institutions operating simply because they provide jobs. There can be a huge amount of damage a bad bank can create. There is a cruelty to our market system, but that cruelty cannot be eliminated. The alternative is fraught with danger, that of carrying on with the weak banks.


Depression Economics [Paul Krugman interview] - Newsweek, Dec 3, 2008

Letting Lehman fail-letting the market work, as some people said-basically brought the entire world capital market down.




Workouts, Not Bailouts New York Times, Aug 17, 2007


Many on Wall Street are clamoring for a bailout -- for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust -- it would be saving bad actors from the consequences of their misdeeds... Say no to bailouts - but let's help borrowers work things out.

Is saving our Fannie enough?
 - Seattle Times, Sep 9, 2008

The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do - and it was done fairly well, too... So Fannie and Freddie had to be rescued...


Deficits and interest rates


Deficits and interest rates - New York Times, Aug 14, 2009


It turns out that there's a strong correlation between budget deficits and interest rates - namely, when deficits are high, interest rates are low ... On reflection, it's obvious why...


A fiscal train wreck - New York Times, Mar 11, 2003
But we're looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ''When the government reduces saving by running a budget deficit, the interest rate rises.'' 


National debt


Quote Without Comment - Lakeland Register, Oct 18, 1985


It's a very good deal for those close to retirement who will never see the taxes that will have to be levied to pay it (the national debt), but it's a very bad deal for people early in their careers. A 30-year old, if she understood it, should be pretty upset, because when she hits peak earnings at age 50, she will be paying for spending now through higher taxes then." -- Paul Krugman, an economist at the Massachusetts Institute of Technology, commenting on the national debt climbing to the $2 trillion mark.


In 2003, Krugman held the same view that debts would affect future generations when he wrote in his article titled Passing it Along in New York Times on Jul 18, 2003:


And tarnished credibility, along with a much-increased debt, is a problem that Mr. Bush will pass along to other Congresses, other presidents and other generations.


The burden of debt - New York Times, Aug 28, 2009


How, then, did America pay down its debt? Actually, it didn't... But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally... Which brings me to a question a number of people have raised: maybe we can pay the interest, but what about repaying the principal? ...But why would we have to do that? Again, the lesson of the 1950s - or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels - is that you need to stabilize debt, not pay it off; economic growth will do the rest.


Debt to GDP ratio


On the Second Day, Atlas Waffled - New York Times, Feb 14, 2003

Dear Alan Greenspan:

...Moreover, since you advocate accrual accounting, you obviously realize that the ratio of debt to G.D.P. is a highly misleading number.


A couple of notes on the 40s and 50s - New York Times, Aug 30, 2009


I think they're missing the point - if even Italy can handle debt/GDP ratios of 100 percent, we should be able to do it too.


Impact of governments on recessions




The fact is, all these promises are silly: Administrations don't cause recession and recoveries--if anyone is in charge of the business cycle, it's the nonpartisan technocrats at the Federal Reserve. 


What didn't happen - New York Times, Jan 17, 2010


Mr. Obama could have done the same - with, I'd argue, considerably more justice. He could have pointed out, repeatedly, that the continuing troubles of America's economy are the result of a financial crisis that developed under the Bush administration, and was at least in part the result of the Bush administration's refusal to regulate the banks.


Sustainability of social security


TWO CHEERS FOR THE WELFARE STATE... - Fortune, May 1, 1995


So by all means, let's have a vigorous national debate about reforming Social Security; it can't be sustained in its present form. 


About the Social Security trust fund - New York Times, Mar 28, 2008


But the privatizers won't take yes for an answer when it comes to the sustainability of Social Security... Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?


Investment of social security funds


Fabricating a Crisis - New York Times, Aug 21, 2001


The outlines of a plan that would sustain Social Security without destroying it are clear: Allow the system to invest some of its surplus in private assets, and close the system's modest long-run financial shortfall by making minor adjustments to benefits and rescinding part of the recent tax cut. 


Gambling with your Retirement - New York Times, Feb 4, 2005


A few weeks ago I tried to explain the logic of Bush-style Social Security privatization... you should borrow a lot of money, buy stocks and hope for capital gains... So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake -- well, too bad...Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances?


Privatization of social security


Notes on Social Security from Personal website of Paul Krugman


None of this says that privatizing Social Security is necessarily a bad idea.


Inventing a crisis - New York Times, Dec 7, 2004


Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. 


Labor unions


Macroeconomics, 2nd ed., by Paul Krugman and Robin Wells, Worth Publishers, 2009 (page 210)


The actions of labor unions can have effects similar to those of minimum wages, leading to structural unemployment.


State of the Unions - New York Times, Dec 24, 2007


Once upon a time, back when America had a strong middle class, it also had a strong union movement. These two facts were connected. 




Maverick Economist debunks theories - Eugene Register-Guard, Apr 18, 1996


Lecture: Paul Krugman rankles many when he refuses to blame this nation's woes on the global economy. Yes, thousands of Americans have lost jobs in some industrial sectors, Krugman says. But global competition isn't to blame... "A lot of what people say about these issues is just dead wrong and silly," Krugman says.


The Trade Tightrope - New York Times, Feb 27, 2004


The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.




TWO CHEERS FOR THE WELFARE STATE... - Fortune, May 1, 1995


That means that, while I believe in free trade and have no sympathy with the sort of liberalism that wants to centralize economic decision-making in Washington (cases in point: Jimmy Carter's energy planners and Bill Clinton's health planners)...


The Swiss Menace - New York Times, Aug 16, 2009


True "socialized medicine" would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper than a Swiss-style system. That's why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.


Role of the government in the economy


Benefit of Dole Tax Plan is Hotly Debated - New York Times, Aug 24, 1996


''Nothing Government has done -- for good or evil -- seems to have mattered,'' concluded Paul Krugman, an economist at Stanford University. Given the size of the American economy and the difficulty of altering its course, ''it's like using a water pistol to shoot an elephant.'' 


Saved by Big Government - Guardian, Aug 10, 2009


What saved us? The answer, basically, is big government.
roadsnbridges's picture

Thanks for filling up the first page.  Good compilation.

Now go fuck yourself.

TruthInSunshine's picture

Hey, fuck you and the horse you rode in on, too, pal.

Everyone is free to either read or skip the amazing compilation of contradictory quotes I've listed from everyone's favorite bi-polar economist, Paul "Forget Everything I Said Yesterday" Krugman, Ph.D.

roadsnbridges's picture

My shittles beat your skittles, Touchy.

Bay of Pigs's picture

Hey bitch, he isn't touchy and you couldn't carry his jockstrap.

Now STFU, read and learn something.

francis_sawyer's picture

Thanks TIS... Quite a compilation...

EuroInhabitant's picture

Exactly. Thanks for your copy/paste. Krugman never won a Nobel Prize, BTW.

JPM Hater001's picture

You get one for being black apparently.

GCT's picture

+1 Truth and thanks for posting it.  I see some pundits are a tad sensitive this morning!

runlevel's picture

as i scrolled the endless page of what appears to be a thread hijack.. i thought to myself "man i hope someone calls this guy a jackass..".  Thank you sir.

Citxmech's picture

The topic was, more or less, about bashing Krugman - so Sunshine's post seems close enough on-point to me.

Besides - that was a REALLY good compilation.  Gonna forward that around for sure.

TruthInSunshine's picture

This can be a "teachable moment." While what I posted was unquestionably long, whether it was or was not a "hijack" is debatable.

I invite everyone over to my house to discuss it over a beer.

To my supporters I wish you health, wealth and happiness. My detractors are free to carry on with their vaginal hurt.

Snidley Whipsnae's picture

I did not see your post as a 'thread hijack'. You were simply pointing out the ever shifting sands upon which Krugman stands and voices opinions.

Over time I have come to believe that Krugman is a very shallow thinker and probably has little memory of what he said in the past on a particular subject.

Our classically educated founding fathers understood well the problems that democracys always encounter. Democracy works only so long as the citizens have the moral fortitude to work hard and earn a living by their productivity. Once the citizens begin to vote for pols that promise the moon and stars by bebasing the currency or stealing from group A to give to group B then it's game over for democracy.

Where I disagree with the Professor and Turk is their optomistic view that soverigns/bankers will be willing to downsize themselves to save individuals and the Main St economy. There is scant evidence to support their optomisim.

We would all prefer a happy ending to this mess but getting one would require a change in human nature... and that strikes me as something that only occurs in a Hollywood production.

A Nanny Moose's picture

Kruggybear's greatest hits. TYVM TIS!

AnAnonymous's picture

The first pick on employment is not contradictory.

In one, it is stated that lowering wages would not increase employment (which is a claim often made by 'americans', one must admit) and could even has a contractionistic consequence.

In the other, it is stated that raising wages and lowering barriers to union organization will come with a consequence: higher employment.

I did not read the rest. But I suspect it is the same vein.

'American' stuff...

Diplodicus Rex's picture

"I did not read the rest."

never a truer word spoken....

TheCanadianAustrian's picture

On another note, it seems like we get at least 5 articles posted here every day explaining why fiat money doesn't work and why deficits and ZIRPs will kill currencies and nations. Obviously I agree, but do we really need to be repeatedly told what amounts to most of us as common sense? There's beating the dead Keynesian horse, and then there's pulverizing what's pretty much a pile of fine horse paste.

Oh well, better too much education than too little I suppose.

ACP's picture

They're just really headers for the material presented, is all.

In other news, the first bomb goes off in France:


Citxmech's picture

The shit is really starting to spin out of control it seems. . .

NidStyles's picture

There are still a lot of members on here that do not understand what we understand.

akak's picture

There are certain members here who quite obviously will NEVER understand what most of the rest understand --- just as the large majority of Americans, and people around the world in general, will most likely never understand; some because they are intellectually incapable, some because they will simply never have the opportunity to be exposed to the truth, but many others because they are fundamentally too cowardly or too morally weak, and therefore unwilling, to understand.

Stepping outside of the Matrix, like being president for George Bush Jr, is just flat-out hard.

knukles's picture

There are some here that not only do not get it but I'd bet are considered dumb as door rocks by thier peers. 
Which speaks holy and magnificant wonderous of the rest ....

(shaking head....)

akak's picture


There are some here that not only do not get it but I'd bet are considered dumb as door rocks by thier peers.

One must include in that select and august group the kneejerk haters of gold, Ayn Rand, limited government, and so-called 'US Citizenism' (whose imaginary nature is eternal, don'cha know).  They will forever be remembered for such classic lines as "Only $5 to dig from the ground!", "Canned ham, bitchez" and "blobbing-up".

LetThemEatRand's picture

Yes, anyone who disagrees with Akak's chosen ideology is necessarily as dumb as a door rock.   I think that qualifies as a GW #1, and the fact that it is part of a thread of similarly minded posts also makes it a #6.  I would add that anyone who believes that whether one respects the self-absorbed religion of Ayn Rand is a binary test of human intelligence has serious issues.  But carry on.  I know you all love yourselves so very much, consistent with Ms. Rand's teachings.

akak's picture

Notice that I stated "kneejerk haters" --- that is "kneejerk", as in "willfully unreasonable, close-minded and excessively emotional regarding a particular obsession or passion".  I believe that you have eminently qualified yourself for such a descriptor.

Carry on --- all those copies of Atlas Shrugged are not going to burn themselves you know.

LetThemEatRand's picture

Ayn Rand was a human piece of shit whose philosophy appeals only to douchebags and the simple-minded (and simple-minded douchbags).   Does that qualify?  

akak's picture

Is that the opinion of her you picked up from a comment while reading the Huffington Post, or did you absorb that opinion from the ravings of the disturbed man who screams at the pigeons in your local park?  Because clearly you have NEVER actually read anything that Ayn Rand wrote herself ---- as you have abundantly demonstrated in this forum on numerous occasions, by attempting to twist and distort her writings and philisophy into something that they are not and never were.

I wonder, who is more hypocritical, Krugman or you?  It's a tight race, anyway.

LetThemEatRand's picture

Right, no one who read and understood her could possibly disagree with her because her philosophy is one of simple perfection.  And if someone does disagree with her, you will insist that such a person is "dumb" and/or could not possibly have read her brilliant words.  See above.

akak's picture

And yet again, more obfuscation and evasion from you, the king of Ayn Rand haters, who condemns her without actually having read anything that she wrote herself!  (And more to the point, without understanding what she did write.)

You are a raging hypocrite and a laughing stock when it comes to honest and sincere intellectual discourse.

akak's picture

I agree.

Now, having made that admission, you should keep going --- they say that confession is good for the soul.

Umh's picture

Essentially you are just an asshole. I've read your many post and can't see why you are still here. I would consider your post more seriously if they were not so repetious.

A Nanny Moose's picture

At the very least, LTER provides an opportunity to break out of the echo chamber and engage in some persuasive rhetoric, rather than a cacauphony of logical fallacies.

Data, logic and rhetoric are critical skills in the battle of ideas. Without them, we are just regressing back to clubs and spears.

A Nanny Moose's picture

Argumentum ad hominem. You can do better.

akak's picture


do we really need to be repeatedly told what amounts to most of us as common sense? There's beating the dead Keynesian horse, and then there's pulverizing what's pretty much a pile of fine horse paste.

It depends on how much the additional pulverizing of the Keynesian dead horse to a pile of fine horse paste adds to net GDP. 

(That is quite aside from the additional and well-justified revenge factor.)

Yen Cross's picture

You again?  Actually, you do have a "unique way" with vernacular.

Yen Cross's picture

 I was able to translate,without the "accent points'. Dziekuje bardzo!   Was my interpretation correct?

  If so, "Composo on for the masses".

Vlad Zerox's picture

Over at Western Rifle Shooters (which has taken to cross linking ZH all the time) they had a nice thread about where to get bulk nylon sand-bags, of high quality.  Now that's information we can all use!

goldfish1's picture

What I think would be very helpful for the laymen is an alphabetical compilation of acronyms on the sidebar for quick and easy reference.


ZIRP - Zero Interest Rate Policy







Meesohaawnee's picture

"A serious inflationary disaster will only be prevented if governments succeed in reducing their deficits and stop selling bonds"   no... not if like they are this week, just fliping a coin on the price of crude. Lets see. What we want Heads 70$ Tails 80$ .. thats how it works these days. The last 4 only confirm that

Landotfree's picture

"there has to be a change in social mentality - so that people realize that nothing is free"

If people didn't want something from nothing they would have never started charging interest.  Interest is the perfect tool to use to get something for nothing.

Hairless monkeys haven't learned anything in 1000s of years, everything you are about to witness has already happened before.

"A serious inflationary disaster will only be prevented if governments succeed in reducing their deficits and stop selling bonds"

Sorry buddy there is no way to avoid the disaster, humans elected to do the crime, now it's pay back time.   1-3 unfunded liabilities are going to taken off the books is my number guess.

Pedro Schwartz is an hairless monkey that thinks he can outrun the equation, only in death can you outrun the equation.


shovelhead's picture

You appear to confuse the legitimate use of capital (stored wealth) with a fictionally created use of credit (data entry) as being one and the same.

One represents labor and it's premium for time preference and the latter is essentially a counterfeit of labor.

Fractional banking IS the business of the free lunch...for bankers.

Legally counterfeiting money.