Paul vs Paul: Round 2

Tyler Durden's picture

Submitted by Azizonomics

Paul vs Paul: Round 2

Bloomberg viewers estimate that Ron Paul was the winner of the clash of the Pauls. But that is very much beside the point. This wasn’t really a debate. Other than the fascinating moment where Krugman denied defending the economic policies of Diocletian, very little new was said, and the two combatants mainly talked past each other.

The real debate happened early last decade.

To wit:

Readers are free to make up their own minds who won that one.

And so, round two. Krugman wants more inflation; Paul is scared of the prospect. From Paul’s FT editorial yesterday:

Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.

Or, as Professor Krugman sees it:

Would a rise in inflation to 3 percent or even 4 percent be a terrible thing? On the contrary, it would almost surely help the economy.


How so? For one thing, large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recover.

Ron Paul believes that inflationary interventions into the dollar economy will have unpredictable and dangerous ramifications. Paul Krugman believes that a little more inflation (although he forgets that by the old measure of CPI inflation is already running at 9%, far higher than his supposed target) will spur economic activity and decrease residual debt overhang. Krugman seems to give no credence to the prospect of inflation spiralling out of hand, or of such policies triggering other deleterious side-effects, like a currency crisis.

The prospect of a currency crisis is a topic I have covered in depth lately: as more Eurasian nations ditch the dollar as reserve currency, more dollars (there are $5 trillion floating around Asia, in comparison to a domestic monetary base of just $1.8 trillion — the dollar is an absurdly internationalised currency) will be making their way back into the domestic American economy, and that this may have a steep inflationary impact. Additionally, many of the deflationary pressures that existed in 2008 or 2009 (e.g. shadow bank deleveraging) aren’t there anymore.

I don’t really know how much of this is to do with the Fed’s inflationary policies, and how much is to do with the United States’ role as global hegemon coming to an end. I tend to think that the dollar hegemony has always been backed by American military force, and with the American military overstretched and its funding increasingly debt-fuelled, the dollar’s role is naturally threatened. If America can’t play the global policeman for global trade, why would the dollar be the currency on global trade?

However it must be noted that America’s creditors do believe that their assets are threatened by the Fed’s inflationism.

As the Telegraph noted last year:

There has been a hostile reaction by China, Brazil and Germany, among others, to the Federal Reserve’s decision to resume quantitative easing.

Or as a Xinhua editorial put it:

China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.

Probably, the egg of American imperial decline came before the chicken of the recent inflationism, but that inflationism certainly has the capacity to worsen the problems rather than lessen them. After all, if America’s consumption-based economy is dependent on China’s continued exportation, and Krugman is advocating slamming creditors (i.e. China) by inflating away their debt-denominated financial assets, then surely Krugman’s suggestions imperil the already-fragile trans-Pacific consumer-producer relationship?

And this is a crucial matter — there is nothing, I think, more crucial than the free availability of goods and resources through the trade infrastructure, which is something that Krugman’s policies seem to endanger.

As commenter Thomas P. Seager noted yesterday:

[The situation today] is directly analogous to the first Oil Shock in 1973. In the decades prior, the US had been a major oil producer. However, efficiency gains and discoveries overseas resulting in an incrementally increasing dependence of foreign petroleum. Price signals failed to materialize that would caution policy makers and industrialists of the risks.


Then, the disruption of oil supplies from the Middle East caused tremendous economic dislocations.


Manufacturing is undergoing the same process. The supply chain disruption from the Japanese earthquake and Tsunami was merely a warning shot. Imagine if S Korean manufacturing were taken off-line for any length of time (a plausible scenario). The disruption to US industry would be catastrophic.


In the name of increased efficiency, we have introduced brittleness.

Time will tell which Paul is right. But I know where I stand.

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Yen Cross's picture

Are you sure? It looks like , Clooney vs Paul...   

Max Fischer's picture



Krugman's quote beneath his picture is taken completely out of context. Conveniently, the reader isn't told that Krugman's quote about the Fed needing to replace the Nasdaq bubble with a housing bubble was actually a quote from Paul McCulley of PIMCO.  Krugman is merely paraphrasing McCulley.  It's a paraphrase of a quote taken out of context. 

Here's McCulley's actual quote in 2001: 

"There is room for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing.....

Neither McCulley nor Krugman were actually advocating for Greenspan to do this.  They were merely stating what the Fed would likely do to justify Bush's huge deficits and Bush's mandate to lower taxes on the wealthy.  The only way to square the math and keep the party going was to create a massive consumer bubble which would hopefully jack up tax revenue.  Without another bubble, Bush's tax cuts juxtaposed against his massive deficits would look like an immediate failure.

"Go shopping, Amuuurica....."



akak's picture

Max Fischer, defender of the indefensible.

Max never met a statist whom he didn't like.

macholatte's picture


Why, why, why does Krugman get so much attention?

Cosimo de Medici's picture

Krugman is a somebody because he won a prize with an asterisk.  In point of fact there is no Nobel for Economics;  it is an afterthought originating in 1968, but its winners pretend they have the official laureate, and others go along so the alchemists won't feel so bad.  Rumor is Krugman won because he bears a striking resemblance to Wilhelm Röntgen.

Oh regional Indian's picture

Truth is, in Krugman's world, what he is presenting IS the solution. Inthis current set-up, print and inflate do kick the can, which is all they want. So, he is right.

And Ron Paul's talk is for the few out there who call th eemperor naked.

Doesn't change the fact that to prosper in THIS set-up, follow Krugman. If it's going to be a new world, then it sure as heck not going to be Ron Paul's world. 



Henry Chinaski's picture

Truth is, in Krugman's world, what he is presenting IS the solution. Inthis current set-up, print and inflate do kick the can, which is all they want.

No kidding. In the NYT this morning...

Opinion » Editorial: A Warning From the Jobs Numbers

After the unmistakably weak employment report for April, it’s obvious that the economy will not heal itself without more government help.

And what's with the lame photoshop/paint blackout of the image?  I am pretty sure ZH wouldn't do that.  I wonder what someone was trying to hide.

Oh regional Indian's picture

There you go HC. The system is set up so only it's remedies can work. New system is going to take breakdown......


Thomas's picture

Here is Krugman's bubble quote. He does cite McCulley in defense of his moronic supposition, but he adopts his idiotic/clueless/reckless notion of the benefits of a housing bubble to become his own (last paragraph):

"And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Krugman as a self-absorbed idiot.

mendigo's picture

...must purge those words from my memory. It was a cruel measure placing that link to krugmans thoughts in your post.

What next you post a link to an abba song?

I am on to you's picture

Must be the same as Obama,he won for not keeping his word on ending the WARS.

 Is it beacuse,he looks a litle like M.L King,i meen the tan,and no offense to any one.

Then why dint Nixon get one,for his excelent job in Vietnam.

And The cowboy ,Ronald Regan,for his brilliant Iran Contra,aint no justice in this world!

And was Nobel ,realy Nobel.Or just" Pax Vomit Scum"like the rest.


HD's picture

"Why, why, why does Krugman get so much attention?"

Well, Krugman is like 3 feet tall - about eye level with the average man's crotch. Considering how much he talks about "stimulus" it's just best to pay attention to what he's doing...

Yen Cross's picture

I like Mr. Fisher, and his " hawkish stance"!

Carp Flounderson's picture

akak, holder of opinions which shall not be swayed by facts.

Temporalist's picture

It should surprise nobody akak that MF Trollboy, a Krugmanite, would stoop to lie just like Krugman himself.  Do as your masters tell you MF Noballs.

JR's picture

Azizonomics got the Krugman quote right. According to febo on Octover 9, 20111: The full quote is:
“The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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.”

Max Fischer's picture



Azizonomics got the Krugman quote right...

No. He/it/they didn't.

He left out the part where Krugman attributed the quote to Paul McCulley.  Convenient, isn't?

Given that the entire point of your post was to verify Krugman's quote, how could you possibly get this wrong?


JR's picture

Max, Krugman’s quote was not changed by the omission ofas Paul McCulley of Pimco put it” with ellipses, Krugman simply was embracing McCulley’s viewpoint with his own. It was totally Krugman's quote. 

Lighten up; it’s the weekend!

Max Fischer's picture



The quote, as referenced in the article, deliberately makes it appear as if Krugman desires a housing bubble, and that was definitely NOT the case. The McCulley omission completely removes the context of the quote, and WHY Krugman chose the particular wording that he did. 

Given that I'm at ground zero for anti-academic, anti-progressive doomer goons, I know I'll never convince you of this.  But that's the fact, Jack.


fuu's picture

Keep toiling Sisyphus.

Aziz's picture

Max Fischer's logic is extremely spurious.

If I quote Ron Paul or Marc Faber in my essays to use their view to support my own then I am endorsing their views. So by implying that Krugman's quote did not endorse the housing bubble (even if his term was a little tongue in cheek) it is like saying Krugman is not a reflationist. 

Everyone knows Krugman is a reflationist, especially Krugman himself who makes reflationist arguments almost every single time he writes a blog post.

francis_sawyer's picture

It is apparent that Max Fisher is a student of the "anti"-"Art of War" book... He's not interested in overall truths (winning the war), he just wants to waste everybodys time by getting them entangled in pesky insignificant skirmishes...

He's like the fucking "Washington Generals" of Zero Hedge... He loses every game to the Harlem Globetrotters 102-1, but goes home proud of himself because he sunk the underhanded Rick Barry free throw on the accidental foul which occurred when Meadowlark & Curly were busy entertaining the fans...

mendigo's picture

The "need a housing bubble" does not make sense even after correcting for the krugman factor. Why reference krugman he is only a puppet of the statists. He is the snookie of philosophical debate on the state of the world economy.

Benjamin Glutton's picture

 You are of course correct Max. Besides the plan to create a RE bubble was born of PD anger/losses from uninsured(no bailout) LTCM losses that they were forced to absorb. So the PD.s cooked up a derivatives regimen outside of securities law that effectively enabled PD's to print their own bailout.


What kind of a troll would try to shift blame from the responsible to a brilliant economist who was simply speaking in observation of current FED(Greenspan) dogma? PK's observation is a warning not an endorsement of reckless FED bubbles.


Secondly it could be argued that both Paul's are correct. One Paul constrains his debate to the reality of current monetary policy and the other Paul indulges his personal fantasy which sadly does not exist as an alternative.

Lastly, a noteworthy real world point of debate never materialized. RP never fails to insist that homeowners should have been bailed out instead of the Banks. This opinion is always among the first expressed by RP when discussing the bailouts but of course ignored by all. I have yet to see a single MSM article acknowledge the merit of clearing bad debt through homeowners which in combination with proper lending standards would have revalued homes, MBS and bailed out the banks. Bailing out faux insurance bets doomed the US economy to collapse and endless legal civil/criminal law accommodation compromising the very foundations of property law and hundreds of years of well established jurisprudence unnecessarily. 

The point of the quote by PK was that obviously the FED is doing the wrong thing by creating a new bubble. I agree with PK and would add that the FED themselves were well aware from the beginning that an RE bubble would end poorly for the nation. Anyone with an IQ above room temperature given the facts held by the FED could arrive at no other conclusion.

It is time to fully dismiss the notion that 'no one could have seen it coming' devoid of convenient scapegoating of low end minority lending when everyone knows the true damage was done by rampant overvaluation at the lower middle through top end range of mortgage underwriting. There is no cost/risk basis for blaming CRA or Fn and Fr for that matter.

A better question for Zerohedge to debate/answer is why the FED chose to wreck the economy.It is past time for Zerohedge to generate a complete autopsy and provide definitive conclusions regarding the FED/PD actions post LTCM/Tech.Bubble. Therein lies the answer to our current economic state.

We owe no less to our future.


mendigo's picture

Holy shit! I love you, man.

...except I am blocking the reference to pk as brilliant economist
I do not understand many aspects of economics but when I have forced myself to read krugmans opinions he comes accross as more of a hair-dresser or cab driver. Though I fear I agree with him inthe end - there are only two ways out of this the one involves hard work, fairness and resposible government and the other is wild-ass ponzi collapse and new world order.

Benjamin Glutton's picture

What PK offers is simplistic and correct in the context of a centrally planned economy. The brilliant comment was a poke at those who refuse to accept that we have a centrally planned economy.


I hate the centrally planned reality too but denial is dishonest.


Agreed on your suggestion of two ways out though I see the power struggle as being between local and central governments at various levels. Clearly local, State and in some cases National governments are losing power through unified central banking by previous extension of credit unsupported by current growth. This outcome was in fact entirely foreseeable and therefore can only be characterized as monetary warfare.

In support of power consolidation those who would stand in opposition of this monetary aggression are labeled commies which I perceive as a thinly veiled threat of actual warfare against our own citizens. 


mendigo's picture

I strong agree with the setiment that my government perceives me as a threat and has declared war on the working class - the statistics are all lies, they are providing cover for the corrupt, they are implementing steal policies which benefit the connected at my expense. Some would say welcome to reality but this is something of a different sort.

dougngen's picture

maybe..... setting intrest rates at zirp was the wrong fed policy......maybe....gasp....they DID cause a housing bubble.....maybe.....they knew what they were doing....

JR's picture

Krugman said it and he meant it. This is the essence of central planning: with the nation’s resources under your control you can try something and if it doesn’t work you can have your trolls or the media deny that you said it or did it -- even praise it or attribute it to your opponent. 

This is the pattern practiced by the centralized MSM; when their operatives misspeak, the media denies that they meant it. This is veiled censorship; propaganda. The pattern of lies carried everyday by the MSM is bad enough but for Krugman’s backers to supply him a personal band of trolls to defend his inanities on the internet – going so far as to say he said the opposite when the words are there for all to hear or see -- indicates just how far those who own the American press are frightened of the truth, frightened of public opinion.

To know Krugman is to know what he is saying. If you read his columns you know that he meant what he said. Krugman is Krugman.  If you want to know what Krugman thinks, read his statements.

What you ask us to believe in sincerity, Mr. Glutton, is what Richard Pryor asked in jest: "Are you gonna believe me or your lyin' eyes !?"

Multi's picture

"You are of course correct Max"...    no, Max is not neither you are.  Let's see:

"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"

"To fight this recession the Fed needs ... soaring household spending ... And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble"

Krugman is quoting McCulley to support his own view. I mean, this is just basic reading skills, nothing else to be disccused here.



Also, you said "RP never fails to insist that homeowners should have been bailed out instead of the Banks"  Pardon!!!???  Ron Paul, as far as I know, is AGAINST any type of bail out. I assume if he said anything close to what you suggest was in the case that IF goverment was going to bail out anyone, it should be the homeonwers instead of the banks. Which doesn't equate to him supporting homeowners bails out in any way.

But given that, as you said, Ron Paul never fails to insist in this it' should be quite easy for you to find a quote from him saying it. Please give us the link, or reference, so we can check this out. Thanks.


Benjamin Glutton's picture

it was among the first things that RP said in the debate with PK. Though your characterization of RP's meaning may be correct in his heart(no bail outs) I would submit in rebuttal that he has followed up that comment on numerous occasions by saying it is the peoples money. In support of that statement he usually adds that the money should have been used to bail out real people not the banks that caused the problem. He has gone on to add that the people will have to pay it back so why would you hand their money directly to the banks.


Though I recommend watching the entire debate you can jump to the 7 minute mark and hear RP give a shorter version of his usual when he says if "why bail out the banks...why not drop the money on mortgage holders with helicopters?" BTW notice PK is not some wild idiot and very clearly supports properly regulated capitalism not the ridiculous financialization we are forced to endure.

link to RP vs. PK

I will find more direct quotes.

Benjamin Glutton's picture

here is RP clearly stating where the money should have gone @ 1:00 to 2:00 watch the video as it is an impromtu opinion freely expressed.


Ron Paul said

last month at a GOP debate:"Bailouts came from both parties…. If you have to give money out, you should giveit to  people losing their mortgages,  not to the banks."

In a practical sense you must acknowledge that he is just one Congressman but given the inevitability of some kind of bailout he is unequivocal about how that bail out should have been directed. It is therefore logical to assume that had he the power the bail out would have been directed at clearing mortgages.

Multi's picture

Thank you for the links Benjamin.


Yes, he's talking about bailing out the mortgage holders. But I think my first impression was correct.

From the video "Ron Paul to Paul Krugman: Inflation Is Theft" in your first link:

at 7:30 minutes, "Why did the FED bail out the rich? Why didn't they give the money to the mortgage holders? ...that would have been more fair"

And from your sencond link:, at 1:57, "If you had to give money out you should have gave it to the people who where losing their mortgages not to the banks".

He's talking about rather bailing out the people than the banks given that you really want to bail out someone. But I believe it's a misconception to think that he wants to bail out anything in the first place.

centipede's picture

Are you intentionally focusing on this unimportant issue? Everybody knows that RP is against bailouts. I think he stated it clearly many times. The fact, that he also said that if there has to be one he would rather bailout homeowners doesn't change a thing.

Benjamin Glutton's picture

Are you intentionally focusing on this unimportant issue? Everybody knows that RP is against bailouts.

no, it is not my intention to put words in RP's mouth though they are his own. if you read through the speeches he made on the house floor pre bail out by the 4th or 5th speech he seems to agree that something must be done.

nevertheless even Ron would admit he is not a KING and given that fact and his numerous statements in support of actual taxpayers regarding his preference of bail out use I do think my characterization unfair.

what IS undeniable is that under no circumstance did RP think that as he states on numerous occasions BANKS should have gotten bail outs while their VICTIMS(his words)got nothing but the tab.


Obviously you realize we are in agreement regarding his true preference for no bailouts.

NidStyles's picture

He's not advocating bail-outs you retard. He's saying that if you are going to bail someone out why not bail out the people that actually need it. He's merely pointing out the criminality of the people that pushed for the bail-outs.

Benjamin Glutton's picture

OK TARD... flip it.


DO YOU honestly think RP would be making a similar argument on behalf of the BANKS if the mortgage holders had been bailed out?


do you need an ice pack?lol

centerline's picture

If one is going to dissect this in terms of PK or RP, then I would offer the following topics of conversation along the same line of your very well constructed post above:

1.  Why does PK continue to assert that banks do not matter in terms of creation of money/debt?  I won't bother going on about this as anyone around here with a couple of synapses to bang together knows that this is false.  So, why hide?


2.  Why does RP pussyfoot around the real issues when dealing with PK and Bernanke?  The questions and responses are loaded of course.  But the core issues never really hit the table.  Again, why hide?

Benjamin Glutton's picture

if you watch the entire debate notice that PK accuses banks of counterfeiting or money printing via repo. that is not the mark of a FED supporter without question. Listen carefully and what you find is that PK is somewhat in agreement with RP and ZH in general.


It is FIAT constraints and the practicality of debate therein that make PK seem radical.

NidStyles's picture

Paul Krugman detracted the printing and said it should have been done purely by the Federal Reserve and in much larger quantities. He's stated this for the past 4 years on several occassions. Apologists like you can not warp reality for the rest of us that are not mental midgets that can't put forth a rational thought if they tried. Yes, I mean you.

Krugman is not even close to what you are claiming here.

Benjamin Glutton's picture

I never denied that PK supports printing given our CURRENT situation.


I said he did not appreciate REPO counterfeiting/printing by PD at whim.


PK fully supports CB intervention as required. BIG DIFFERENCE.



Major_Freedom's picture

Actually Max is incorrect.

Paul Krugman said this in 2001:

"In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.”

See the words SHOULD and THE MAIN ANSWER?  Those are advocacies, not mere descriptions.

All his other statements of low interest rates and generating housing booms are advocacies as well.

dougngen's picture

You got "anti-progressive" rignt!!!  Anti communist too!! (same)

amadeusb4's picture

When did ZH'ers become such an army of zealots? ZH has definitely taken a turn for the ideological and I'm for one am sad to see this play out because I come here for market/economic analysis and then get barraged with Heritage Foundation headlines and Glenn Beck fanboys.

NidStyles's picture

You must be new here, and with that in mind you are attacking us that have been here for much longer than you and calling us Glenn Beck Fanboys? When you speak all I hear is the stupid leaking from your skull.

amadeusb4's picture

Thank you for the welcome. Since you know stuff around here, can you point out the ignore feature? i'd really like to use it now.

Major_Freedom's picture

It WAS definitely the case, Max.

“In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.”


You see the words SHOULD, and ARE THE MAIN ANSWER?  Those are advocating words, not mere descriptive words.

WatchingIgnorance's picture

The fact is MF, if you can stop jerking Krugman for just a moment, is that our economy is a CONSUMPTION economy which, at some point in the future, is destined to fail for no other reason than it is a CONSUMPTION economy (i.e., there is no excess productivity for which one can save and thus become 'wealthy' in your sense).

So, how do we keep the train rolling, keep the sheeple spending and thus keep the illusion going? Why, we have to create bubbles to give the illusion of wealth, with each subsequent bubble bursting in a more spectacular fashion than the last. This last one was a booger, but the next one, as one can extrapolate, will be even more spectacular.

We have been living an illusion for far too long. All you guys decrying everything is fine is analagous to the farm hand herding all tghe cattle in to slaughter. You CANNOT grow INFINTELY in a FINITE universe. Eventually, you will hit the wall.

Go down to the Wal-Mart by my house on the 3rd and tell me everything is okay. These people couldnt feed themselves without a SNAP card. PERIOD!

Luckily for all you pompous economists, they are too stupid to do anything about it.

You make me sick.

Major_Freedom's picture



You are an imbecile.  Resources are not finite for practical purposes.  Yes, from the view of the creator of the universe, there is only a finite amount of stuff to move around, but for human purposes, we have only barely scratched the surface of the Earth.


You morons would rather humans live in squalor and live brutal, short lives, for the sake of mother Gaia, who is not to be disturbed.


You are not presenting a philosophy for life, you're presenting a philosophy of death.


Yes, life does seem sickening to those who champion death, but to be considered sick by people like you, tells me I am doing something right.

Chump's picture

I never thought you were paid to post your nonsense here, until now.

Krugman quotes someone as support for his argument, but Krugman does not actually agree with the quoted support?  Could you possibly be more of a buffoon?  Give it a go, please...