KRUGMAN: The Fed May Have Just Made A Historic Mistake, And Done More Damage Than It Realizes

Krugman's thinking is sophomoric. The Fed is not providing an economic "punchbowl" with its QE, it is simply printing money to give to politicians to spend. To a much lesser extend they are printing money to give to homeowners in the form of lower interest payments. Neither of those things is a punchbowl, but rather they are malinvestment. Think of this way: would you loan your own savings to Joe Homeowner from Podunk who lives in a (still) overpriced home, has poor job prospects with lots of other debt and lives in a country with rapidly increasing total debt load and staggering unfunded obligations? I realize that some people still buy treasuries with their own money but only because they have no choice.

Businesses are likewise not betting on America other than the flash in the pan companies like Apple who know millions will line up to buy a new toy despite their dire economic circumstances. Other drivers of the recent stock market rise were the banks that make money off of the economically worthless refinancing boom and Fed-enabled politician financing boom.

The Fed has engineered some of the most unsustainable bubbles of all time: mortgage-backed and politician-backed securities both of which are joined at the hip (the same taxpayers are behind the repayment streams of both types of securities). The fact that these bubbles will pop without the Fed is obvious to anyone but dolts like Krugman along with the fact that making bubbles larger only makes things worse when they pop. Bernanke said a month ago or so that he would not sell his piles of securities but "hold them to maturity" IOW pretend that they are an actual "investment" and not a bubble.

The other thing a lot of people don't realize is that these bubbles undermine the sustainable portions of the economy by locking up scarce resources in mostly worthless projects selected by the politicians, a series of commodity price booms and busts, a number of carry-trade created booms and busts around the world: relatively high interest rates attracting our low interest rate money until everyone admits the high interest rate country is a basket case and all rush to the exit at once as the foreign currency tanks or in the case of Greece where it can't tank the bondholders get a haircut.

With all these sources of malinvestment it is hardly any wonder that the entire worldwide economy is stagnant apart from some Asian and Middle Eastern boom cities, offshore banking centers, and European Alpine resort towns.

Allow me to explain. Qe......

It is not about key an monetary policy.....

It is not about aid recovery from recession....
it was about PREVENTING DEPRESSION.....

Bernanke is a student of the great depression....

So far, he has managed not to make the same mistakes. The QE was never my worry, my worry is the tightening that has to occur....

Too tight, too fast, and it will all crash..

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