Posted on 06/22/2013 6:04:33 PM PDT by blam
KRUGMAN: The Fed May Have Just Made A Historic Mistake, And Done More Damage Than It Realizes
Joe Weisenthal
June 22,2013
REUTERS/Jason Reed
The most important story in the world is the change of direction in US interest rates, which coincides with the change in tone out of the Federal Reserve, which on Wednesday indicated that so long as its economic projections come to pass, it plans to slowdown on Quantitative Easing later on this year, with an eye towards totally ceasing bond purchases sometime in 2014.
The markets puked on the news, and interest rates shot up, a move that was exacerbated by Bernanke himself saying he was not worried about the rise in rates.
According to Paul Krugman, it's possible this will end up as a "historic" mistake.
If the economy recovers, then fine, whatever, the Fed will get away with it.
But let's say things sputter out again, and it becomes clear that more easing is necessary. Sure, the Fed can ramp back up QE, and step on the gas pedal again. And the Fed has indicated that it retains this ability.
The problem though is that by acting like a traditionally responsible central bank (trying to avoid inflation and bubbles pre-emptively) it can no longer commit to being irresponsible, which is what many have argued is necessary to truly avoid a deflation trap.
(snip)
I really hope that the real economy recovers at a pace that makes my fears groundless. But if it doesn’t, I fear that the Fed has just done more damage than it seems to realize.
Check out his whole post here.
(Excerpt) Read more at businessinsider.com ...
Aliens did it.
Tapering The Taper Talk ("Fed's next announcement will be to increase, not diminish QE")
ping
Krugman is a Keynesian in more ways than one. Quantitive Easing should have been done a long time ago.
Quantitative Easing was “printing money to paper over the deficit.” And despite what they say, that is all it was about. The deficit has been coming down a bit, so they don’t need to print as much money.
As for the interest rate deal, it might be that the rates were too low for people to get a return on investment. I can’t imagine issuing any bonds and getting any buyers at these rates.
Krugman needs an excuse for his mistakes. He’s setting the scene for blaming someone, anyone, but himself.
...it plans to slowdown on Quantitative Easing later on this year, with an eye towards totally ceasing bond purchases sometime in 2014. The markets puked on the news, and interest rates shot up...Gosh, it's almost as if the Obama Deficits are having an impact on interest rates. Must be about time to raise taxes again.
I like people who call a spade a spade.
"Quantitative Easing" ought never to have been done, but at the very least, it's got to come to a halt at some point.
The news caused the markets to fall, this in turn allowed insiders, aka people who are friends of POTUS and Bernake to buy in to the market cheap, then announce the change and ride it back up, instant profits.
Listening to anything these people say is the way to madness. Krugman is arguing about re-arrangement of the deck chairs on the Titanic. They’ve created a fascist system and floated it on a sea of debt. What could go wrong?
That's how a complete novice sees it, anyway. How far off the mark am I?
Scouts Out! Cavalry Ho!
Nice antidote to Weaselthal and State Controlled Business Insider.
I really don’t think Bernanke had any choice but to print money. When the annual deficits were around $400 billion, there was enough capital in the world markets to soak it up. But when the deficits skyrocketed to $1.6 trillion and stayed there for three or four years, it exceeded the world’s capacity to absorb it. There was really no other action Bernanke could do but print money, and then come up with a fancy BS name lest people realize they were going to have to take their paychecks home in wheelbarrows.
There's the problem. With real unemployment and underemployment somewhere north of 13%, wages are and will continue to be nominally stagnant. Prices, the cost of living, will continue to rise as the standard of living declines sharply. Then new taxes will be proposed.....
Bernanke, the Fed and the ObaMao administration have been practicing the same type of deficit spending coupled with printing money which Krugman has always advocated.
The theory is that printing money will increase the velocity which means greater turnover and greater economic growth. It has sometimes worked as a short-term strategy.
The most spectacular success was in the early days of our Republic when we were able to inflate our way out of debt from the Revolutionary War by printing money. It worked then because most investors understood it was a short term strategy to launch a fledgling republic which they felt had a fairly decent chance for success . . . at least after Burgoyne was defeated at the Battle of Saratoga and America begin to gain recognition by the great powers of the world.
It will not work now because most investors realize America is devolving into a debt-ridden has-been European type economy at best or a third world banana republic at worst. Nothing will change as long as we have a dumbed-down electorate of parasites feeding off the productive class which will only increase the efforts of the producers to move money off-shore and go Galt as the hopes of electorally changing the policies of the present regime fade.
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