Those who ignore history are doomed to repeat it.
Here is how Krugman's ideas are working out in Zimbabwe:
Posted on 05/15/2011 8:20:40 PM PDT by sickoflibs
In a recent screed masquerading as the thoughts of a Nobel prize winner in economics, Paul Krugman excoriates those who speak of fear: fear of a debt crisis, of runaway inflation, of a disastrous plunge in the dollar. Scare stories are very much on politicians' minds.
As Krugman explains, such worries are irrational and certainly untrue: None of these scare stories reflect anything that is actually happening, or is likely to happen. And while the threats are imaginary, fear of these imaginary threats has real consequences: an absence of any action to deal with the real crisis, the suffering now being experienced by millions of jobless Americans and their families.
In other words, there is no real inflation, and to even broach the subject is proof that one hates the poor and jobless.
The rise of prices for fuel, food, and other commodities is nothing more than a reflection of their "volatility." And the decline of the US dollar against other fiat currencies of the world is a good thing, because it will improve US manufacturing sales.
But while Krugman takes the move-along-folks-nothing-to-see-here approach to the real crises at hand, calling them "phantom menaces," others are looking at the horrific damage that Ben Bernanke and his allies in both the Bush and Obama administrations have created — and rightly seeing even more crises ahead. To make things even more ironic, we are seeing a situation akin to what occurred in the early 1930s; Bernanke and others claim they want to avoid the "mistakes" make by the Federal Reserve System at that time, and so they are following the same path the Fed took 80 years ago. We are at the end of the "end game" that Bernanke and his allies have been imposing upon the rest of us.
Forget for the moment the argument that Krugman and others have made, that the economy is in that "special case": the "liquidity trap," which requires an infusion of massive government spending in order to snap the economy back into prosperity. Instead, let us look at the actions the Fed took right after the failure of Lehman Brothers in September 2008, a failure that "convinced" Congress to bail out Wall Street.
Until that time, the Fed's portfolio consisted mostly of short-term Treasuries, something one would expect given the nature of the central bank's open-market activities, in which it would buy and sell government bonds in order to increase or shrink the economy's monetary base. However, the Wall Street crisis provided the fig leaf allowing the Fed to play the role of the rich uncle who bails out family members when they become financially overextended.
Thus, Bernanke's minions entered the financial marketplace with a bottomless checkbook, purchasing assets that had lost value (like mortgage securities, AIG stock, and the like) in the marketplace. However, in order to make it look as though the markets were fine, the Fed purchased these securities at prices close to their precollapse worth; Bernanke and company were playing the let's-pretend-this-worthless-paper-is-valuable game.
If you want a sense of just how reckless the Fed turned out to be in its rich-uncle role, the diagram below will help put things into perspective:
Source: Federal Reserve Bank of AtlantaThis was supposed to be Bernanke saving the economy, at least in the short term, but actually Bernanke's actions did no such thing. At this point, the gulf between the Austrians (who are unanimous in their criticism of Bernanke's actions) and the Keynesians (whose only regret is that Bernanke did not purchase even more worthless assets) is exposed. Let me explain.
In the Keynesian analysis, assets are held to be homogeneous, and the economy is believed to be a bland mixture of those assets that are fully employed when the amount of consumer and investment spending is high enough to continue to give the economy "traction."
When consumer and investment spending flag, however, Keynesians hold that the government must step in by borrowing and printing money in order to revive the spending circle. If the government spends enough, then the economy can move on its own to the point where consumers and investors keep it going — at least until the next crisis. Keynesians call this movement the "circular flow," although it is more like circular logic, in which the premise is the conclusion and the conclusion is the premise.
What must never happen is a large-scale liquidation of assets, because that would trigger deflation, which would be accompanied by an endless downward spiral and an economy stuck in a "liquidity trap" with falling prices and high unemployment. Thus, in the Keynesian view, the Fed was justified in purchasing these worthless assets, because it prevented their liquidation and preserved at least their "paper" values.
Austrians, however, take a much different view. What Keynesians call idle resources, which need only an injection of spending to be reemployed, Austrians call malinvested resources. The different is crucial, because Keynesians believe that the Fed's actions prevent an economic downward spiral, while Austrians hold that what the Fed has done furthers the economic downturn.
The difference in opinion centers on causality. Keynesians believe that the downturn is created simply by a reduction in spending, while Austrians hold that the recession is caused by the fact that the series of malinvestments created during the previous boom cannot be sustained. The drop in spending is the result of the downturn, not its cause. The difference in beliefs is crucial: in the Austrian paradigm, trying to sustain the boom conditions by injecting new government spending will always end in disaster.
The reason is simple: it takes real resources to prop up malinvestment, resources that should be going to those investments that fit within a sustainable structure of production. This point is absolutely crucial. Keynesians believe that because there are "idle" factors of production, directing them toward anything is better than letting them go unemployed; the opportunity cost of using them tends toward zero.
The Keynesian paradigm holds that if these idle factors are not directed by new government spending, they will be unemployed for an indefinite time period, as the system is locked into a "liquidity trap" and cannot move away from this perverse "equilibrium" without government help. Thus, massive new injections of government spending are absolutely necessary to keep the economy from imploding into deflation and depression.
To a Keynesian like Krugman, the only question one needs to ask is how much spending is needed. That the economy has not really moved in the direction of full employment is prima facie evidence to Krugman that spending has been too low, and he dismisses criticisms of his theory as the rantings of lunatics.
But here is the problem: despite Krugman's complaint that government spending is not high enough and despite his defense of Bernanke's actions against criticisms from people like Ron Paul (whom Krugman never misses a chance to smear with false allegations), the truth is that the Fed and the Obama administration are at the end of the tracks, and their train cannot go any farther. Even though the Fed and the government have thrown billions of dollars at the housing market to try to keep housing prices from falling, prices are falling.
Furthermore, even though Krugman admits the "recovery" is running out of steam, he blames people like Ron Paul because they don't believe the Fed should be in the money-printing business. What Krugman and Bernanke refuse to even acknowledge is that the scheme of diverting resources to prop up the failures of the last boom's malinvestments is a colossal failure, and until government policymakers stop trying to reflate the failed boom, there will be no recovery.
Ben Bernanke has opened the Fed's checkbook in an unprecedented fashion, and while he claims to be "saving" the financial system, in reality he is destroying it. He has kept the failed firms afloat, thus preventing the necessary transfers of resources from lower-valued uses to higher-valued uses. (Like Krugman and his boss, President Obama, Bernanke seems to believe that government can create wealth by transferring resources from higher-valued to lower-valued uses, the reason being that government can order any set of values into existence by sheer coercion.)
Although Bernanke and others arrogantly dismiss the rise in commodities like gold, silver, oil, and agricultural products as having nothing to do with the Fed's overt policies of inflation, it is clear that the markets are ignoring these "experts," paying no attention to the men behind the curtain. People are making their own decisions with their own money, and more and more they are voting Bernanke and his declining dollars off the island.[1]
So, trillions of dollars later, with the dollar hopelessly debased, we find we are no better off than when we started, and the necessary asset liquidation has barely begun (thanks to Bernanke). While Krugman and others claim that Bernanke has saved the economy from sliding into depression, I think he has merely guaranteed that things are going to get a lot worse.
If you realize both parties in Washington think that our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus that has some magic easy cure for the economy; someone who is going to get elected in Washington and fix everything just by cutting your taxes, investing (more government spending) a few trillion more we don't have and will never have, and who will just command some countries to lower their prices and others to raise their prices all to suit your best interests, then this list is not for you.
You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.
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The Austrian Economics School’s Commandments plus :From : link
1) You cannot spend your way out of a recession
2) You cannot regulate the economy into oblivion and expect it to function
3) You cannot tax people and businesses to the point of near slavery and expect them to keep producing
4) You cannot create an abundance of money out of thin air without making all that paper worthless
5) The government cannot make up for rising unemployment by just hiring all the out of work people to be bureaucrats or send them unemployment checks forever
6) You cannot live beyond your means indefinitely
7) The economy must actually produce something others are willing to buy
8) Every government bureaucrat should keep the following motto in mind when attempting to influence the economy: “First, do no harm!”
9) Central bank-supported fractional reserve banking is an economically distorting, ethically questionable activity. In particular, no government should ever do anything to save any bank from the full consequences of a bank run, no matter what the short-term consequences.
10) Gold is God’s money.
Add mine:
1) Businesses don't hire workers just because of demand for products or services, they hire because it makes them money. Sorry to have to state the obvious.
2) Government spending without taxing is still redistribution
3) Taking one man's money and giving it to another is not a job.
4) Paul Krugman and Bernake have been wrong about everything, as well as the other best and brightest Keynesian's who have been fixing our economy for over a decade.
5) Republicans in the minority (esp out of the White House) act like Republicans, in the majority they act like Democrats .
Equity bubble rules:
1)If something goes up too fast, it is going down faster,
2) By the time it looks like everybody is getting rich, it’s too late, stay out!
3) To get rich you have to get in early start of recovery and get out at the first really 'bad' news, and ignore the experts that claim that they will stop the next crash(our buddy Bernake.).
4) Don't invest money you will probably need, or worse money you don't really have.
*Krugman*
‘click’
Another “lost decade” that leads to yet another economic disaster and even less hope, just like Japan.
SAVE
I’m thinking seriously of Going d’Anconia.
Poor families cannot eat improved US manufacturing sales. Damned thieves and liars, all of them.
Ron Paul hasn't stopped the printing presses - how on earth can they blame him? They blame him for 'thinking' about stopping the printing?
Those who ignore history are doomed to repeat it.
Here is how Krugman's ideas are working out in Zimbabwe:
| Bernanke said 2011 growth has slowed to less than a 2 percent in the first three months of this year. The Fed chairman said: ''most of the factors that account for the slower growth in the first quarter appear to us to be transitory.'' Right Mr. Chairman, 'transitory' in the same way the current administration is 'transitory'. The first won't end until the other ends. And I guess if we enter the worldwide socialism club, we'll never have to worry about growth again. All I know is that if they tell us we had 1.8% growth, it really means we had no growth or negative growth. Trillions of dollars worth of unsustainable debt is signaling that more QE is inevitable regardless of the jawboning rhetoric of Ben Bernanke. For the guy who cranks out new dollars on the Treasury's printing press, he spends a lot of time insisting the value of the dollar is someone else's responsibility. Can you say 'Kabuki theater?' So the Fed's inaugural 'meet the press' moment was in fact preparing the ground for the start of QE3. Bernanke has his 'tools' you know. It's all fiat money now, meaning that it has value only because the Fed says it does! So we have an unstable economy wobbling atop unsound money. Money that the government takes from taxpayers, or borrows with no intention of paying it back, or prints without end. The Fed will have printed about $1.8 trillion from the end of 2008 to the end of June, 2011 - partly to finance staggering federal government deficits of nearly $4.5 trillion over the three years. So the Fed's actions are undermining the dollar precisely because that's what the White House wants Countdown until Obama leaves Office: 615 days as of May 15, 2011.
------------------------------ Welcome to the 1970s: low growth, high inflation. And the Keynesians argued this can't happen. The whole QE2 pump-priming has stimulated inflation. It's all virtual money now! Hope and Change.... Tragic. |
The Fed has purchased AT LEAST $4tril in public and private debt instruments and lent untold $trillions at nearly 0% to public, private and FOREIGN borrowers.
And, the production of commodities and finished goods, rather than their purchase would make this country filthy rich again.
This country could not have lost more blood if the Government/Banking/Union/Media/Wall St Complex had set out intentionally over the last 2 decades to bleed it dry.
At best Krugman is suffering from “Normalcy Bias” http://seekingalpha.com/instablog/731545-ethernal/95806-normalcy-bias-and-the-us-bond-bubble
..at worst....he's a mouthpiece for the Obama administration....... Ask yourself 1. Is the price of food I buy going up? 2. Is the price of gas going up? 3. Is the price of home heating/cooling going up? 4. Is my utility bill going up? 5. Is the price of any normal necessity going up? ...and last but not least...ask yourself....Am I suffering from "normalcy bias"???
At the end of every empire.....that is what America is an Empire. Albeit a new type, not seen on Earth in our sight. At the end of the empire, the elites begin looting the Treasury. First of all, they want to make sure THEY don’t go down with the ship of state. That is what is happening right now. As long as they can keep this nation afloat, there are billions, nay TRILLIONS left to be stolen. When it is all over, we will own nothing. We will just be tenants in our own country, to whoever holds the T-Notes. The game is over, take care of yourself, and pray.
Disagree with that article. Why do they believe that the demographics are different in America? They are very deflationary.
is that they don't have anyone on staff that speaks Austrian....
Plenty of Eubonics specialists...but nothing in Austrian
(What a putz!)
bump for later
Ben Bernanke is the worst Fed Chairman in history. It could take a generation for the nation to recover from his policies.
REFERENCE : How To Keep A Damaged Financial And Economic System Afloat?
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