Dan Kervick: Contra Krugman, Why Increasing Inflation is Not Likely to Increase Employment

Yves here. I have a mild quibble with part of the argument below, which is based on a study I find badly constructed. Having lived through the 1970s, I can attest that a certain level of inflation does lead people to spend faster to beat rising prices. But my sense it that effect does not kick in until inflation is perceived to be meaningful, say somewhere over 4-5% a year, and I suspect the effect is backwards looking (ie, consumers base their forecasts not on official projections, but on their own recent experience). The study cited covers only durable goods and only the period from 1984 onward, where inflation levels were markedly lower than in the 1970s. Finally, marketing consultants have pretty much abandoned asking questions (“would you buy X”) as a way to assess demand. It’s just not reliable. But the conclusion in the piece is nevertheless is probably correct, since modern central bankers are so inflation-averse that they would be unlikely to tolerate it getting to anywhere near the level needed to induce anticipatory spending.

By Dan Kervick, who does research in decision theory and analytic metaphysics. Cross posted from New Economic Perspectives

Paul Krugman argues in a recent New York Times column that right-wing critics of Ben Bernanke and his colleagues are trying to bully the Fed into a misguided obsession with inflation, and that “the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing.”

Krugman is absolutely right to lament conservative pundits’ and politicians’ obsessions with inflation when tens of millions of Americans are languishing in unemployment, with all of the personal, social and economic misery and waste that unemployment entails. But his argument, which assumes that the Fed can boost employment by engineering higher inflation, is problematic. He defends the inflationist approach this way:

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 recovery.

I believe this is the wrong approach. The Fed’s ability to boost employment is very limited, well-intentioned citations of the Fed’s full employment “mandate” notwithstanding. Rather than looking to central bankers and the banking system to accomplish a task for which they are not really cut out, we should turn our attention back toward fiscal policy as the primary tool for bringing the country up to full employment and keeping it there. And rather than seeking engineered inflation as the mechanism for boosting spending and employment, we should implement the MMT job guarantee proposal to achieve full employment and price stability at the same time.

Krugman’s two main arguments for the beneficial results of inflation are questionable. First, he argues that inflation will help reduce private sector debt overhang. But inflation only reduces debt overhang in a significant way for households who are fortunate enough to see their nominal wages rise along with the general rise in prices. In today’s economy, workers are frequently not so fortunate.

Suppose you work 40 hours a week for $1000 of take home pay, and you have a weekly debt bill of $500 and a weekly consumption bill of $500. So you work 20 hours for debt repayment and 20 hours for consumption. Now let’s suppose prices rise by 5%. Then the same basket of consumption goods you purchased before for $500 now costs you $525. Your debt bill, which is fixed in nominal terms, remains $500 per week.

Suppose also that your employer does not give you a raise, but chooses to take advantage of the inflation by keeping your nominal wages right where they were at $1000 per 40 hours. Then the result will be that you will have to decrease your real consumption by 4.7%. You will continue to work 20 hours for debt repayment and 20 hours for consumption, but now your consumption will be lower in real terms.

This worry about employers’ behavior is a real one. We don’t live in the old days of strong unions and the wage-price spiral that existed when economists like Krugman were cutting their teeth. We live in a permanent buyers’ market for labor characterized by persistently high unemployment and minimal worker bargaining power. As prices rise, many people’s nominal wages stay fixed or lag well behind the price level increase. Real wages go down and ordinary folks feel the sting of higher prices without the benefits on debt relief.

Doubts can also be raised about Krugman’s claim that people respond to inflation by increasing their propensity to spend their income. The idea is that in an inflationary environment, one is losing money just by holding money, so to the degree people expect higher inflation their incentive to spend rather than save increases. But while this behavioral response sounds plausible in theory, it might not be how people actually behave in practice. Instead, people worried about having to pay higher prices in the future and attempting to maintain a stable level of real expenditures over time might cut back on expenditures now to save for the expected higher prices.

A recent paper by Rüdiger Bachmann, Tim O. Berg and Eric R. Sims, based on data from the Michigan Survey of Consumers, makes this argument. The authors find that:

… the impact of inflation expectations on the reported readiness to spend on durable goods is small in absolute value when compared to other variables, such as household income or expected business conditions. Moreover, it appears that higher expected price changes have an adverse impact on the reported readiness to spend. A one percent increase in expected inflation reduces the probability that households have a positive attitude towards spending by 0.15 percentage points. At the zero lower bound this small adverse effect remains, and is, if anything, exacerbated.

In addition to these concerns about the efficacy of Fed-induced inflation as a tool for boosting employment, we should bring in a further consideration about the monetary policy approach to full employment. There is growing appreciation among economists who study the banking system that the Fed’s powers to engineer significantly higher employment are quite limited. The Fed’s influence on our economy is exerted primarily by its governance of the bank lending channel. But the Fed’s role here is primarily to maintain the smooth functioning of the interbank payments system by passively accommodating any increased demand for bank reserves that result from higher bank lending. Banks are not significantly reserve constrained. The lending comes first; and Fed accommodation comes later. The Fed can’t do much to make banks lend when the demand for credit among qualified borrowers just isn’t there. Scott Fullwiler’s recent New Economic Perspectives post on the Fed’s role in the banking system brilliantly outlines this line of analysis.

However, if one is really determined to boost demand, production and employment by pumping money into the economy, the clear preference should be for the fiscal pumps. Congress could pass a law directing the Fed to credit $500 billion to Treasury’s account, and then pass a series of spending bills directing how that money is to be spent. No new taxes; no additional borrowing. Just credit the money and spend it out into the real world. Demand and production are stimulated directly, rather than relying on the Fed-based, supply side approach of indirection and wishful thinking.

The direct fiscal approach might be inflationary, although the inflationary pressure from new money chasing goods and services in the market should be offset by the expanded volume of goods and services made available to meet the increased demand. But if there is inflation, at least ordinary people would be receiving the higher nominal income they need to cope with it.

Central bank induced inflation is sometimes supported by economists as a strategy for reducing the real wages of workers, in the hope that we then get higher employment by lowering the real cost of hiring people. Yes, there are some people who still believe America’s workers are overpaid! In a recent post, Scott Sumner approvingly quotes Tyler Cowan, who has argued both against public sector hiring and for lower real wages. Cowan said, “the greater the number of protected service sector jobs in an economy, the more likely those citizens will oppose inflation. Inflation brings the potential to lower real wages, possibly for good.” Sumner then argued that Cowan’s considerations are a strong argument for favoring monetary policy over fiscal stimulus.

But working people have already suffered enough. It is absurd to support lower real wages for working people as a tool for getting to lower unemployment. The real incomes of workers have been falling for years, while the ratio of CEO to worker pay in America is now in the hundreds, and massive amounts of the nation’s productive wealth are skimmed off the top of our economy by a bloated and wasteful financial sector in the American plutonomy. If there is another approach to full employment – one that does not place the burden of assisting unemployed workers on the backs of employed workers who are struggling themselves – we should take it.

The MMT approach to full employment is a federal job guarantee program that will stand ready to offer a job to anyone both willing and able to take it. Descriptions of the job guarantee program and the economic theories supporting it can be found in the writings of many MMT authors. One classic source is Warren Mosler’s article “Full Employment and Price Stability.” And two useful recent discussions of the MMT approach to employment and price stability, by Pavlina Tcherneva and William Mitchell, can be found here and here.

The job guarantee and other fiscal policy initiatives can only be carried out by politicians, not by central bankers. The exaggerated attention that pundits continue to devote to the Fed and monetary policy helps run interference for failing politicians, who are only too eager to continue to shirk their duties; to pass the buck to the convenient scapegoats at the Fed; and to promote the myths of monetary policy fixes for major economic challenges that require political courage and political solutions. The obsession with the Fed, and the public delusions of vast untapped central bank powers that these obsessions propagate, are a massive social distraction. There is no central bank shortcut to the goal of full employment. We need more politics and more action by Congress and the President, not more financial technocracy. It’s good to hold the feet of the powerful to the fire. But right now the wrong feet are being roasted.

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  1. F. Beard

    Congress could pass a law directing the Fed to credit $500 billion to Treasury’s account, Dan Kervick

    Yes, good idea, but $500 billion sounds too small to undo the damage the banks have caused.

    and then pass a series of spending bills directing how that money is to be spent. Dan Kervick

    Some infrastructure spending is needed but if that is insufficient then money should just be GIVEN to the entire population ala Steve Keen.

    No new taxes; no additional borrowing. Just credit the money and spend it out into the real world. Dan Kervick

    Yes. Federal borrowing is fascist privilege for the rich and the banks. It should be forever abolished.

    Demand and production are stimulated directly, rather than relying on the Fed-based, supply side approach of indirection and wishful thinking. Dan Kervick

    Yes. The banks won’t lend into an unhealthy economy so it is pointless waiting for them to end this Depression.

    The direct fiscal approach might be inflationary, Dan Kervick

    Not if a ban on further credit creation is applied and if
    the spending is metered to just replace existing credit as it is repaid.

    although the inflationary pressure from new money chasing goods and services in the market should be offset by the expanded volume of goods and services made available to meet the increased demand. Dan Kervick

    Correct. Rather than bleed the economy as the Austerians would do, the correct approach is a transfusion – given, not lent, to the patient.

    But if there is inflation, at least ordinary people would be receiving the higher nominal income they need to cope with it. Dan Kervick

    Yes. Both savers and borrowers have been cheated by bank induced inflation/deflation. Turn about is fair play if it comes to that.

  2. Defiant

    Good article Yves!

    For discussion purposes, inflation is not a rise in price. Looking at it as such, IMHO, creates confusion and makes it difficult to understand the real issues and also take the bullzeye from the real problems.

    Inflation is simply a rise in the money supply, although I can expect many to argue it. As you can see from the summary, the solution becomes very complex and I cannot see how this will be successful. It reminds me of a damn with millions of tiny holes and someone trying to patch each hole as it grows.

    Guaranteeing jobs for people will be a net loss for society as a whole. Let’s say you make 500 a week and pay 50 in taxes today. The government will have to take the money from someone to promise a job for another one. In other words, your tax bill just went up, let’s say another 50 bucks. You now have 50 bucks less to spend somewhere else in the economy, reducing demand somewhere else, killing perhaps more jobs than the 1 being created. If not by direct taxes, by issuing more debt, which has the same net effect – net negative. This simply does not work.

    The Central Bank can and does create inflation at will – simply by lowering interest rates and issuing debt. As stated on another post, it’s like opening a damn – water will flow somewhere. Let’s not call the flow of the water the issue, let’s resolve why the damn was opened in the first place.

    So rise in prices don’t happen because consumers are causing it (buyer behavior – water flow), no – it happens because there is an increase in debt (damn opened) – which allows those consumers or companies to purchase more of X, thereby driving up the price. It is easy to see why the price of X going up is irrelevant. So the fed can create inflation by opening the damn, but it does not have control of where it goes. Focusing on buyer behavior is like focusing on children after leaving them alone in a room with 50 pounds of candy for a day. I think we know the result.

    From my summary, it is easy to see, that the Central Bank is creating the issue by opening the damn and the solution becomes much clearer. Patching small holes in the damn will not resolve the larger and real issue.

    1. F. Beard

      If not by direct taxes, by issuing more debt, which has the same net effect – net negative. Defiant

      What debt?

      This simply does not work. Defiant

      I suppose blood transfusions don’t work either. What part of “loans create deposits; repayment destroys them” don’t you get? How healthy would you be if someone had lent you your blood supply and then demanded it back WITH INTEREST?

      1. Defiant

        I like the analogy but don’t subscribe. There were more than just a banker at the table when the loan was signed and all should be held accountable.

        Spend on items you cannot afford is not the same as blood, the banks are doing what they do best – lend. Or do we all need a mcmansion, every version of the iPod/iPad, flat screen TVs, etc, etc… You see, buying things we want is not the same as buying things we need, please don’t confuse the 2.

        So here is the flow:

        – Central banks creates debt/liquidity and cheapens it by lowering rates.

        – Banks will lend to make interest on that cheap liquidity.

        – Consumers borrow to buy on things they do not need.

        Using blood as a terminology is like someone gaining 100 pounds and blaming it on McDonalds.

        1. F. Beard

          There were more than just a banker at the table when the loan was signed and all should be held accountable. Defiant

          No they shouldn’t be. Those who don’t borrow from the counterfeiting cartel are priced out of the market by those who do borrow from the cartel. Thus people are DRIVEN into debt. Or have you priced college tuition lately?

          And whether you subscribe or not the money/blood analogy is accurate. Money is the lifeblood of our economy and it is literally lent into existence for interest. A crueler system is hard to imagine.

          1. wunsacon

            >> Those who don’t borrow from the counterfeiting cartel are priced out of the market by those who do borrow from the cartel.

            Thanks, Beard!, for this very nicely phrased observation.

      2. F. Beard

        – Consumers borrow to buy on things they do not need. defiant

        So an education and a home are not needed?

        Keep talking. You’re making no friends here and discrediting the Austerians big time.

        1. Defiant

          I love the way you phrase your question.

          Are education and home not a need… Of course they are – but your answer mascarades the truth. Do you need a 750,000 home is the question. Do you need a 30k a year college education is the question.

          The liquidity being driven into these markets is what drove the prices to those levels in the first place, not sure why you are disputing me. My argument is that the liquidity should not be allowed in the first place, and prices would be more affordable.

          Why is education so expensive if we have new efficiencies such as technological developements, the internet, etc… Again, the fed pushes out the liquidity, the banks will lend it, the consumers (students) will use it and drive up costs.

          We are sitting here arguing against the price of items, yet you defend the Fed. Amazing…

          1. F. Beard

            My argument is that the liquidity should not be allowed in the first place, and prices would be more affordable. Defiant

            Correct but the damage is done. Deflation is as ugly, stupid and damaging as pulling out a barbed arrow. And unjust too.

            We are sitting here arguing against the price of items, yet you defend the Fed. Amazing… Defiant

            Incorrect. There should be NO Fed. Instead the US Government should just spend its fiat into existence and tax SOME of it out of existence as needed to control price inflation.

          2. Nathanael

            The problem in education prices is that states have jacked up the price of state schools massively. And these days you DO need a college degree from a state school.

        2. Defiant

          Isn’t the right thing to do to stop this unethical behavior as opposed to supporting it?

          Two wrongs don’t make a right…

          I also disagree that deflation hurts consumers. No it does not, it hurts the irresponsible. If you have saved, your money will gain purchasing power during deflation… This supports responsible behavior. These gains, as they did on the way up with inflation, will feed upon itself on the way down on deflation and make people more apt to saving, as well as being responsible and shun risky behavior. and to top it off, prices will drop.

          Of course it’s not all good, the economy will tank, jobs will be hard to come by, but how painless is a hangover after an all night out drinking hard????

          1. F. Beard

            No it does not, it hurts the irresponsible. If you have saved, your money will gain purchasing power during deflation… This supports responsible behavior. Defiant

            Why do you assume collecting usury from one’s fellow countrymen is “responsible behavior”? It isn’t according to Deuteronomy 23:19-20. And risk-free hoarding is CONDEMNED by the Lord Jesus Christ in the Parable of the Talents (Matthew 25:14-30). The offender is called “wicked” and “lazy”.

            Now admittedly people should be able to save (within reason) without being penalized with negative real interest rates but the Biblical ideal is investment, not savings.

    2. alex

      Defiant: “For discussion purposes, inflation is not a rise in price.”

      For discussion purposes, we should not corrupt the English. While it’s often necessary to impose a more precise technical definition on an everyday word, what you’re doing is trying to usurp a word. Redefining things is not a useful way to make an argument.

      Here the lexicographers have more expertise than the economists. From our friends Mssrs. Merriam and Webster:

      inflation: a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

      Note how they do not confuse cause and effect.

      1. Defiant

        I guess I am not perfect after all, but agree – this makes it easier to understand.

      2. F. Beard

        A slightly more precise and accurate definition is derived from MV = PY when P is differentiated wrt time. The dictionary definition you cited leaves out the velocity of money.

        1. SDB

          Does the quantity theory of money eclusively refer to monetary operations? (that is, it is not talking about fiscal operations?) It seems when people talking about increases in M translate to increases in P, they are using an umbrella over monetary and fiscal policy.

          Any thoughts?

          1. F. Beard

            My definition of “money” is bank reserves plus “credit” – in other words what the banks pass between themselves (reserves) and what they foist on us (“credit”).

      3. wunsacon

        Mish tries to “correct” people about what “inflation” means. While I’ve benefited from reading his preferred definitions, maybe we should never use “inflation” as a word by itself. Maybe we should use less ambiguous/debated terms like “price inflation” (to refer to any kind of sustained, economy-wide price increases that might stem from either printing too much money or some other kind of currency devaluation) and “credit inflation” (increases in lending/borrowing).

        1. Nathanael

          Or “wage inflation”.

          We don’t have “general inflation” until we have both price inflation AND wage inflation.

          This is a common confusion among people noticing the increase in prices due to peak oil and global warming. But that’s not a wage increase… so it’s not general inflation.

    3. Lambert Strether

      “The government will have to take the money from someone to promise a job for another one.”

      Doesn’t this (a) exhibit the lump of labor fallacy and (b) exhibit the mistaken idea that taxes fund spending?

    4. Dan Kervick

      Defiant, you might want to read the Fullwiler article I linked near the end of my piece. The central bank’s impact on bank lending and debt is not nearly so direct as the conventional picture has it.

        1. Rex

          Groan. I thought people here were giving you too much credit for having a rational point of view. Now you’ve proved my suspicions.

          1. Defiant


            The article goes into a technical view of how banking works, which is all well and good, but focus on the proposed solution and you will see the “not enough printing” (non-zimbabwe) & “pay off people’s debt” & “give people money” (Zimbabwe) solutions.

            If anyone can answer how much printing will be enough, than perhaps I will change my Zimbabwe stance. I happen to think the market works better than both the Fed and the government at setting prices.

  3. Half End The Fed

    I think everyone would be happier if we would start by taking away the Fed’s “maximize employment” mandate so that the Fed is no longer the Goto Guy for all matters economic and financial – with the exception of TBTF bank regulation which they have already decided is not their job.

    1. Susan the other

      This is a good idea. No more scapegoating by Congress. When the mandate for full employment falls to them they will have no where to hide.

      1. F. Beard

        When the mandate for full employment falls to them [Congress] they will have no where to hide. Susan the Other

        Excellent point! However, except for some generous infrastructure spending, the emphasis should be more on monetary compensation to the entire population for the damage done to them by the counterfeiting cartel, the banks.

  4. alex

    Dan Kervick: “inflation only reduces debt overhang in a significant way for households who are fortunate enough to see their nominal wages rise along with the general rise in prices. In today’s economy, workers are frequently not so fortunate.”

    Agreed, that’s the big problem with Krugman’s “inflation is good” argument. The 1970’s are gone, hello 17th century (a period of inflation and declining real wages).

    “there are some people who still believe America’s workers are overpaid!”

    As indeed they are, but not in the way that Cowen, et al, think they are. What matters is that they’re overpaid compared to foreign workers. The obvious cure for that is to reduce the foreign exchange value of the dollar and bring our trade back into balance. Of course that wouldn’t increase the inequality in America, so folks like Tyler would be upset, but nothing is perfect.

    1. Defiant

      Krugman is an interesting individual to say the least. Not sure what his assumptions are based on, but according to him, the Fed was not doing enough after bailing out the banks.

      So the Fed issued QE1. It was still not enough, so the fed issued QE2. It was still not enough, so the Fed issue QE3 (twist). I have a question for Krugman and all Keneyesians – can you tell me when it will be enough?

      At least this will give me some barometer as to how far in in deep trouble we are. I will go out on a limb and say that Krugman is well aware that Keneyesian economics does not work. However, what do you do when you promise everyone happy happy joy joy and capricorns once we cross the horizon?

      Well, in the beginning it’s easy as we won’t reach the horizon anytime soon. It’s all good folks, we will get there – keep chugging along – dont look here, we are not devaluing/stealing your wealth. And than, a day comes when you can see a cliff coming up. Krugman sees the cliff, but the poor populus are so fixed on the capricorns and cannot see an inch ahead of them. Oh Krugman can see it, but he knows full well that telling the populus that there are no capricorns will not be pretty.

      I can tell you what his explanations will be when people start falling of that cliff – “We did not do enough”, “Nobody saw this coming”. There is something greater than the populus looking at these individuals and one day nature will reign it’s course.

      1. run75441


        You are correct on the Fed, it was the gov which should have reacted to the current situation.

      1. Susan the other

        Yes, but only if it is based on insuring a minimum level of well-being. If it is determined by corrupt governments and corporations for their own gain this minimum wage will be a slave wage. Or simply siphoned off.

      2. Defiant

        Wage laws are not they seem at face value. Will explain. The government should enforce responsible behavior and not allow irresponsible behavior. Just like all of us, there are issues associated with not following the law – and most laws (there are some exceptions) are good for society. This means paying individuals the going wage.

        If you are paying the going wage and not braking rules, I am confident that we won’t see issues of employers abusing employees (non-payment, etc). An example is the US today, the need for unions is gone (they are now tax payer bullies), employers pay the going wage because if they don’t employees will leave – and the employer will fail.

        The market can take care of these issues on it’s own, if the regulators do not allow a chosen few (GM, Pharma, Oil, banks) to be excused from it, it will be even better.

        The issues 80-100 years ago was the lack of laws which enforced responsible behavior. That is the reason wages/etc are irrelevant issues today.

        Hope this helps.

        1. alex

          “paying individuals the going wage”

          And what determines the going wage?

          “employers pay the going wage because if they don’t employees will leave – and the employer will fail”

          1. See question above.

          2. Suppose things stay in a nice high unemployment state (like now). What does that do for the going wage?

          1. Defiant

            The market determines the going rate, the government enforces the rule of law accross all citizens and corporations operating in the country.

            Companies are not looking for slaves, they want productive individuals and obviously, the best for the buck. Just like we all do when we shop around.

          2. Defiant

            What does high unemployment do – well, I think we both know the answer. It forces down salaries and earnings.

            If you drive 150 mph and hit a wall what happens?

            If you drink a couple of bottles of vodka what happens the next day?

            The economy slowing down is not a bad thing, it is washing out excesses created by irresponsible behavior. If we think that we can have a party every day and drink cognac for ever without paying for it than let’s keep the party going. Don’t blame the bystander warning you.

          3. K Ackermann

            Defiant… it’s not nearly as cut and dry as you make it seem. Flushing out excesses is cyclical unemployment, but we are seeing structural unemployment. Some debate that, but they are wrong – all you have to do is look at the Big Mac Index.

            Here’s a scenario: a company reports higher earnings than the year before, and even boasts of an increase in the average pay for their workers that exceeds the national average.

            It sounds great until you dig into the numbers. Earnings are higher on less revenue, and this was accomplished through efficiency gains. In this case the efficiency gains AND the average pay increase came about by firing all the lowest paid employees and outsourcing the work to China. Average pay goes up (without actually paying anybody more), and now a bunch more people are on the unemployment rolls and obviously not spending, the jobs are never coming back, and the gains go toward bonuses and dividends for a few.

            The Big Mac Index right now has China paying 44% less for a Big Mac than the US. If a Chinese company started selling Two All-Beef Patties, Special Sauce, Lettuce, Cheese, Pickles, and Onions on a Sesame Seed Bun for 44% less than a Big Mac because their costs were that much lower, then McDonalds would be forced to move production to China to compete.

            That is a structural problem.

          4. Defiant


            I see your point, but let’s use another analogy to analyze the structural situation.

            Let’s say you are running a company and hire 100 employees and after calculating all expenses you spend 2 million to make widgets and sell them for 3 million. X number of people will buy your widgets and spend that 3 million on your widgets.

            Now I come along and start another company making the same widgets, hire another 100 workers and after calculating costs, i spend 1 million to make the widgets and sell them for 2 million.

            Now you have a problem, either you find a way to compete with me or you will soon go out of business, as well as you should. I am being more efficient than you and am providing a benefit to society, I am saving them 1 million.

            Yes, companies have gotten more efficient and can do more with less and these productivity gains should have been flushed down to consumers. And these gains would have been shared if the Fed was not meddling with money and rates.

            On the example above, the population would have had 1 million freed up to spend on fridgets or saving for a rainy day (is this not sharing???). Except that the fed lowered rates again and flushed the market with liquidity again, and now that extra million cannot buy you a bag of chips. Companies/Banks would have hedged their millions to keep up with inflation. So your extra million has just been stolen without you even knowing it – because “there is always inflation”. The profit sharing activities within top mgmt have always been there, they just become more visible now that productivity gains of the last 70 years are gone. The government has allowed this because it also benefits their agenda, which is mostly aligned with promises (on the bank of the same tax payer being robbed) and more spending (both parties are one and the same).

            The government has proven that they are willing to defend the rich and lobbied interest. Do we think that the government will have a faint of heart and start pulling for the 99% now? “Saving jobs”, does not save jobs, they are actually killing jobs. How many government workers does it take to save a job – can anyone answer that?

            Whether the issue is cyclical or structural, what option do we have? Is punishing responsible behavior (savers) the way to resolve the structural issue? The productivity gains have been stolen already, they are gone and they are not coming back. We can sit here and argue, but give me a good solution that will not destroy the little that’s left?

            All this time the savers were being responsible holding on to every little cash they got their hands on and now we think that ripping it off from them to give it to the irresponsible will cure us? What do you think currency devaltion/higher taxes/lower interests will do?

            There is more than just a solvency and structural issue in the United States. There is a crisis of behavior, starting with the core (the government), flowing into banks, into corporations and all the way down to consumers. Everyone knows what the issues are, but we think that patching tiny holes will stop the damn from overflowing. I hope I am out of the way when it breaks, that’s for sure.

        2. davidgmills

          “The government should enforce responsible behavior and not allow irresponsible behavior.”

          What planet do you live on? I have been a lawyer for nearly 34 years. My take on things is the the vast majority of the time reasonable doubt can be bought for those who have enough money. Laws favoring the rich can be enacted by governments bought by the rich.

          The government is pretty darn useless at prohibiting irresponsible behavior when money is permitted to corrupt the system.

          1. Defiant

            Agree David,

            You are 100% on target, and I am not naive about how useless they are at enforcing responsibility. But let’s step back a bit.

            There are many individuals concerned about the course of the country, it’s obvious by these groups that are being formed every day (Occupy movement, the tea party, etc).

            We all have the same concerns, but the media has done an excellent job of shifting the focus of citizens 1 million different ways. From “conservatives” to “liberals” to porn to American idol. Just sit and watch TV for half hour and you will know what I am talking about.

            Our job as concerned citizens should be to re-direct/unite that focus/concern. we need to clarify what the cause of the issue is (Gov and Fed), discuss the issue openly, propose solutions, and tell the government what their role should be. The last time I checked, they are our servants and work for us.

      3. Half End The Fed

        There is tariffs, just in case for some reason the rest of the world doesn’t agree to one.

        1. jonboinAR

          I also favor the enforce-a-minimum-wage-standard-on-our-trading-partners approach, environmental standards, as well. They don’t have to trade with us if they don’t like it.

          1. Rcoutme

            Finally someone has brought up the 800lb gorilla in the room. Yes, the Chinese have engineers who are equivalent to American engineers (not all, but some). Yes, those engineers will work for less (nominally) money. However: those engineers work in a country where they could hire personal servants for a couple of dollars a day (if they feed them, probably pennies a day). In addition, China has virtually no ‘real’ environmental controls and will jail anyone who has the guts to mention, “union” or “bad working conditions.”

            The playing field is not even. Free trade is no such thing if the other guy is using protectionist practices. Meanwhile, we are being used as mercantile raw materials suppliers (and end-product purchasers).

            The only “good” news in this is that we are generally purchasing these goods with US dollars (our fiat currency). That means that we have no obligation to ‘pay back the loans.’ We only have an obligation to honor the money. In addition, we can (and probably will) limit how foreign entities spend money in our country (thus preventing them from buying the whole place).

  5. El SNarko

    Here is instant demand. The Fed issues grants to pay off revolving credit for famalies making under 150k. About 600 bln would be a wonderful start. These would be at Prime +1%, and require only .50 on the dollar repayment. Also do the same with 200 bln of student loans. Repeal Bush tax cuts over three years. Mandate upper limit on revolving credit interest of 15%. Increase taxes to pay off Irag and Afghanistan over say 15 years, and specify them as the Bush/Cheney/Rumsfeld tax. Agree to finance educational loans (a public good) at prime +2%, including a stipend of up to 10 k per annum so older and married students and those with kids would have a snow balls chance to get to and through grad school. I have no clue as to what to do about housing. Eliminate fraud and initiate at least some cram downs would be a start.

    Start a Tobin Tax. Ban HFT. Period. It is not human scale. Investing MUST be done at human scale, all else is three cad Moti. Limit hedge funds to to a % of the national GDP that is half of what it is today and mandate tha tthey be open t osmall investors as a mutual for at least 20% of their participation. Set corporate taxation at 27 % of gdp, which would approximat that of the 1950’s.

    Gonna stop ther but ALL of that is irrelevant without national single payer health insurance. Since you are now buying your freedomas a commodity it too needs subsidy and to be made affordable.

    Something to ponder. I now believe that Western Civilization would not be possible without debt. To the extent this IS true, then it behooves us to do this core competence properly with sound, flexible, and updated regulation. History has not stopped, even for Wall Street. Do they really want the Pecora hearings that will surely ensue after the crash 2021?

    1. Dan Kervick

      I agree we have to return finance to the business of promoting the actual capital development of the country, and get it out of the business of devising rackets and schemes for draining wealth from the productive efforts of others.

      1. Nathanael

        For most of its history, finance was better at rackets and schemes than at actual capital development. South Sea Bubble?

        You have to keep finance on a choke chain in order to keep it *only* doing useful things.

    2. K Ackermann

      You can’t just have the Fed pay off credit card debt to stoke demand. If it did stoke demand by everyone rushing to go in debt once again, then the resulting inflation from all that free money being spent would severely punish those who saved and work for their money. It would encourage everyone to be wreckless and dependent on the next givaway, which would have to be that much bigger.

      A much, much better way would be to have everyone work off their debt with productive labor. There is a massive and modern infrastructure out there just waiting to be built.

      1. Defiant


        Who decides whether the infrastructure needs to be built? Is the lack of infrastructure impeding growth (not spending need, but societal need)? How well did this work for Japan and China?

        Truth is, if the market deems the infrastructure needs building, it will push for it to get built. Japan is now sitting on expensive infrastructure that nobody uses.

        It’s like having a family a 3 and building a house for a family of 20, just because we need to spend more to help the economy. The problem is you just spent the money you could have used on real necesities. Talk about dislocation – have we missed the empty cities in China and the bridges to no-where in Japan? Why not wait until you have the family of 20?

        1. sidelarge

          “Japan is now sitting on expensive infrastructure that nobody uses.”

          Huh? The vast majority of the Japanese “expensive infrastructure” is vital to the country. You are picking on some odd local airports here and there to create a false narrative. The country actually has an urgent need to upgrade some of the basic infrastructure.

          And I know why I hear this nonsense typically from Austrians. It’s another dead giveaway, along with “Zimbabwe”.

          1. Defiant

            I think you miss the point I was trying to make.

            Have you heard of Japan’s bridge to no-where?

            I’m all for infrastructure projects as long as there is a need for it, if the project is deemed as need to support traffic/population growth/etc… NOT as a method to stimulate growth…

            Japan – BTW – has gone from a nation of savers to a nation of bankrupts, a nation that is on the brink of collapse. The day the bond market decides not to lend them anymore, collapse will ensue…

          2. F. Beard

            The day the bond market decides not to lend them anymore, collapse will ensue… Defiant

            Japan is monetarily sovereign. That means it has no need to borrow in the first place. It also means that Japan effectively has no national debt since the debt of a monetarily sovereign nation is ITSELF money but with the defect that it pays interest.

            So long as Japan has goods and services the world wants, the Yen will always be in demand.

          3. Defiant

            I will degress and call Japan another Greece. Time will tell who is right and who is wrong. As stated before, money does not grow on trees and comes from flying unicorns.

          4. F. Beard

            As stated before, money does not grow on trees … Defiant

            Yet you think money can be mined from the ground. I’d say you don’t understand money.

          5. Defiant

            It can be what the market choses Beard. Wooden sticks, pieces of rock, paper, iotas, what ever the market wants…

    3. Rcoutme

      The problem with your Student Loan idea is that it encourages universities to RAISE THEIR PRICES! This has occurred for quite a few years now. When you affect one side of an equation, the other side will balance it out. Basic algebra.

      1. Defiant

        This is common sense and something I’ve brought up on multiple posts. The government helping is the government not helping. Keeping their hands out of the pot seems to work alot better.

        Pushing loans into any of these markets will only causes prices to rise to levels where society cannot afford without loans. It’s stealing basically, but people are con’ed into believe it’s “help”.

        The same will happen with health care if the government gets their hand in there. Soon enough people would not be able to afford it unless they take a 40k loan.

        Look at these brilliant economists focus on models and how bank A makes a deposit on bank B, blah blah blah. The fed is the cause of these issues because it constitutes to fraud. A slowly killing virus that nobody seems to see.

        What is the definition of insanity again?

        1. davidgmills

          That is why the government should not borrow. It should print whatever money it needs or wants the people to have and spend into circulation as Beard has said above.

          The printing of money should not be left to the bankers. The vision of the founding fathers was that the government would issue money not the private sector hence the phrase that Congress shall have the power to “coin money” in Article I, Section 8. “Coin money” was interpreted by the Supreme Court of the US to include paper money as well as coin.

          1. Defiant

            The government might prove worst than the bankers. Here is an item you may not have considered.

            Do you think bankers want to lend their money and get paid with cheaper money at a loss? I think we both know the answer. They want to get paid back with cheaper money with interest – at an overall gain.

            Do you think the government cares about the value of money or about spending on their “projects” which will let them gain votes to stay in office? Giving the government control of printing money is as good as accepting defeat and collapse.

          2. F. Beard

            The government might prove worst than the bankers. Defiant

            Unlikely. The government could mandate 100% reserve lending and take over all money creation. That would require a lot of government spending just to prevent massive shrinkage of the money supply as existing credit is paid off with no new credit to replace it.

  6. Half End The Fed

    Besides, the last people you want to ask about what to do about the economy would be an economist, Krugman or almost any other.

    When the Fed first proposed QE as the solution to all our ills, me and others asked on econ sites – of the PhD proprietors or any other expert lurkers – what is the transmission mechanism of QE to the real economy?

    The only sort of answer we got was some talk about how we are at the “zero bound”, and how if you take the Taylor Rule – a rule of thumb based on empirical observation – and extrapolate it into a quadrant of x-y space where the Taylor Rule has never gone before, then wonderful things happen to the “output gap”. This was a favorite of Krugman too.

    So that sounded like great sci-fi, the banks yelled “yeah! we can be klingons”, and for all we know the biz cycle just did its revert to the mean thingy.

    Then around Earth time QE 2.5, Science Officer Ben noticed on his instruments that we had a rather robust stock market recovery. Then he applied some logic to vulcanize a theory, and declared that the Wealth Effect from rising stock prices is the transmission mechanism for QE – no matter what number it is or no matter what brand name the Fed decides to give it.

    Just recently, Dr. Taylor – inventor of the Taylor Rule – said “My God, Ben! Who gave you the power to miss use the Taylor Rule like that?”

    I’ve had enough.

  7. Anarcissie

    A perhaps peripheral issue: If employment is held to be an unalloyed good thing, and there is a shortage of it, why not try to distribute it more equally? That is, encourage a shorter work week?

    1. run75441


      Google Tom Walk (aka Sandwichman) who is a proponent of decreasing the 40 hour week to employ more people. Chapman is another good resource for this argument.

      While this makes sense, the issue still goes back to the allocation of productivity gains since the late seventies which has been skewed away from Labor.

      1. Defiant


        It is away from labor due to a simple reason. Employees can use debt/credit (gate opened by Fed) to purchase items they would not otherwise, essentially borrowing from the future and moving demand forward. It’s an illusion, but employers no longer have to worry about competing for labor on wages as the populus uses more and more credit. Credit becomes part of life.

        Back in the 70s you could have gone to college without a loan, today that’s something that only happens in fantasy. You need a home, well, you need a loan. You need a car – another loan. Can you see the issue?

        So it is not the evil companies not willing to pay higher wages, it is the use of cheap credit which allows consumers to have the ILLUSION they can afford items they cannot. It is designed to be deceiving and it is.

        But here we are talking about how banks con’ed us into loans and companies are not giving us raises, while we should be talking about who and why was the credit/debt damn opened in the first place. We address that and we fix the issue.

        1. F. Beard

          it is the use of cheap credit which allows consumers to have the ILLUSION they can afford items they cannot. Defiant

          Wrong! To a large extent it is NOT an illusion. That so-called “illusion” built real goods and produced real services. The problem is that the life-blood of the economy, money, is lent, not spent, into existence.

          So what now? Should housing be allowed to rot while there are homeless because of a mere shortage of money? A shortage of something that can be created with a keystroke?

          1. Defiant

            Excessive debt drove up the price to levels that were out of synch with fundamentals. In other words, a person working in McDs would not have otherwise gotten a hold of 750,000 to buy a house – as it happened during the bubble. But the person was able to do it during the bubble? If that is not an illusion, irrespective of wheter homes were built, I dont know what is. Bottom line, people’s salaries did not support home prices. Again, you can add 3 gallon of water to an ounce of oil, but in the end you have an ounce of oil and not more.

            You come to the question about – what happens to housing now? Well – would you rather pay 500k for a house or 200k for the same? Which one would benefit your family and leave more disposable income to spend on necesities?

            Yes, home should be allowed to fall in prices because that is the natural course. There have been 3 QEs and no salary increases. More debt, higher taxes, more bubbles and NO salary increase. So, again – when is it enough?

            Replacing the debt with US issued currency will do what is coming to Greece – we will get a first row glance at how this “solution” will do. Greece has been bankrupt for a few years LIKE US – numerous bailouts later they are still bankrupt LIKE US – while all the money has been thrown down a black hole, Greece is and will continue to be bankrupt LIKE US. Eventually, Greece, will leave the Euro and will issue their own currency. If what you are stating is correct – Greece should thrive when it issues it’s own money. Perhaps they will pay off their debt and bailout every single citizen. In this case they will have full employment, everyone will have alot of money to spend, their economy will be humming. Let’s be patient and see how this turns out. I anticipate it wont be as pretty.

          2. F. Beard

            I anticipate it wont be as pretty. Defiant

            It won’t be pretty if hard-hearted, monetarily ignorant Austerians with little regard for mercy or even true justice and a propensity to worship gold, hoarding and usury have their way.

            As for your McDonald’s example, what choice do the poor have but to speculate when honest saving is precluded by negative real interest rates?

            You are poor, you say? You especially should read this then:

            A poor man who oppresses the lowly is like a driving rain which leaves no food. Proverbs 28:3

          3. Defiant

            Perhaps this is part of the con – but what you call help is what I call deceipt, what you call deceipt is what I call help.

            If politicians were so concerned about the well being of society we would not be arguing, would we. If the government taking from one person, taking some for their own personal requirements, and giving a small % means giving to you, than perhaps we are both wasting our time.

            Giving is not giving, when you rip it off by force from someone else. Unless you agree and perhaps, the government ripping off your whole salary for my well being is an ethical thing to do. Perhaps I just don’t get it, and that is the approach.

            I think Krugman and the others have very technical and intellectual models that are so complex and nobody will eventually understand, but one thing is clear. They cannot replace capital for “free” currency. They can use words to confuse the masses, but the truth is clear, and it’s right in front of us.

            It seems something is good and ethical until it is directed at us. Than it suddenly hits us smack in the face and our opinions quickly change.

          4. Managing Director, Capitalist Collections

            “Giving is not giving, when you rip it off by force from someone else. Unless you agree and perhaps, the government ripping off your whole salary for my well being is an ethical thing to do. Perhaps I just don’t get it…

            …but one thing is clear. They cannot replace capital for “free” currency…

            It seems something is good and ethical until it is directed at us. Than it suddenly hits us smack in the face and our opinions quickly change.”

            That’s exactly what I said to Governor Corzine after I got the call from Timmy saying the MF Global bailout was a no go.

            I said, “You know, John, I’m afraid all the government’s electronic pixels are going to have to stay lodged in the Ben Bernank’s i-Phone until after the election. If Wikileaks or Anonymous pick up the datastream of “free” currency movement, and the news gets out, it could hurt President Obama’s electoral prospects, and President Obama doesn’t think it’s very ethical of you to hurt the reelection chances of the world’s first black Nobel Peace Prize winner AND American President.”

            He rushed to agree with me, and asked me to convey to the President his agreement with his “no new money” ethics. Then, you know, I don’t know. Somehow some customer accounts got vacuumed.

            Look, times are tough and Capitalist Collections, LTD has a really busy quarter ahead. Andrew Schiff and the rest of his cohort want to relocate from the boroughs to Manhattan.


            That sh*t ain’t cheap. Do you have any idea what private school tuition is in Manhattan?

            If this “no new money” policy keeps up and the hood rats in Greenpoint and Williamsburg keep chasing every last already existing electronic pixel working second jobs at Barnes and Noble on the weekend and then boarding their pixel stash to pay for SAT tutoring a dozen years from now, instead of funding accounts at MF Global, then Capitalist Collections is going to have to figure out how to get the pixels so desperately needed to rescue people from Cobble Hill from someone.

            You dig?

          5. skippy


            Skippy… watch out for those electron battery’s in New Jersey… market square eliminators methinks.

        2. James Cole

          It was illusory because it was not sustainable over longer than 10-20 years and the consequences have now permanently undermined the security of at least a generation of workers. It was also illusory because, at leasr in the case of houses, the borrowers could not keep the fruits of their indebtedness.

          1. F. Beard

            It was not an illusion. If the money had kept flowing so would have the prosperity.

            Now we have the absurd situation of homelessness and empty houses just because of a shortage of money.

          2. Nathanael

            The only illusory aspect of it was the poor locations and designs of the houses.

            If this had been a Soviet “five year plan” — print money, pay people to build houses, put poor people in it — it would have worked just about the same way, *except that the people would still have their houses*. The Soviets would, of course, have mislocated and misdesigned the houses, but so did we!

            The abusive debt system means that we did *worse than the Soviets*.

        3. run75441


          No, you could not have gone to a college without a loan in the seventies unless you were one of the rich then making > $200,000 annually. I went to college in the seventies and what saved me was the Illinois State Grant and the VA Bill otherwise I would have had to take a loan. It is a matter of perspective as to what is costly now, what is costly then, what was a higher than average income then, and what is a higher then average income now.

          As labor content decreased in the cost of manufacturing, the productivity did not go to the few eft laboring at a higher efficiency. The productivity gains went to Capital and not due to cheap credit. I do not know of many people who could buy a home in the seventies or before without taking a loan unless of course you were of the high income bracket. Loans to buy cars and homes existed for years before the seventies.

          I would say the author of the article has the point skewed. The issue is whether the spending has created an inflationary economy or not. The answer is no. Labor is still in abundance with little chance of seeing a tight labor supply for a decade to come. The cost of which and the abundance of which will hold spending by people under control.

          1. run75441


            Where did you go to college in 1972-1974? Pray tell enlighten us as it clearly was not junior college which would have been the tuition you cite. The tuition is as I cited. Rich was $200,000 which the AMT was put in place to control . . . keep skewing as you may. Median income in 1974???? ~$11,000 http://www2.census.gov/prod2/popscan/p60-100.pdf

            Where did you go to college? Certainly not at one of the $800/year schools. The average family was how big? 4 people? Loans were required then as they are now silly. You are skewing the facts to suit your needs.

          2. Nalu Girl

            As much as I dislike agreeing with defiant, I did go to college in the 70s and did not have to take out a loan. Tuition at Arizona state university was $300 a semester. My folks helped out a little, my husband was working full time (although not making a lot) and I also had two and at times, three part time jobs. I graduated in1981, just in time to avoid the yearly tuition increases.
            I would certainly not be able to afford college today.

          3. Nathanael

            “what saved me was the Illinois State Grant and the VA Bill ”

            You do realize this is EXACTLY the sort of thing which has been cut by right-wing legislators? This is why college is more expensive!

      2. Anarcissie

        If labor had gotten a bigger share of productivity gains, that would be yet another reason for the workers to work less. However, I was trying to engage the unemployment-because-there-are-no-jobs issue which Krugman’s thirst for inflation seemed to be about.

        1. run75441


          The question has been twisted by the author. The real question is whether more spending will create higher inflation? It has not to date even with the Wall Street rescue under belt when the Fed sunk Trillions into it, created many new banks out of former investment houses, backed them with gov guarantees, and loaned them money cheaply to invest.

          Dan Kervick has twisted the question away from spending causing inflation to one of a concern for higher inflation. Think about it, we do need more spending without or with little regard for inflation.

          1. Anarcissie

            Actually I see a good deal of inflation in my daily life. Nothing stupendous, but it’s chugging right along. I’m speaking, of course, of the ‘real economy’, that is, actual goods and services for which I pay out of my limited and largely fixed income. But maybe it’s just a local phenomenon, which doesn’t affect mystical figures given by the government. The real at war with the true again, I suppose.

            Anyway, I am surprised to hear now that inflation is the issue, rather than employment. The title of the article above does mention both inflation and unemployment, but in it, inflation is merely instrumental, whereas greater employment seems to be the implied goal. Hence my question: why, if employment is an unalloyed good, but in short supply, would ‘we’ not want to simply distribute it more equally by, say, shortening the work day or the work week? But if (un)employment is unimportant, then of course ‘we’ don’t need to worry about it.

            This is not a rhetorical question.

          2. run75441


            Inflation is not the isse. Spending is the issue as I stated. People such as Defiant claim if we spend inflation will result . . . BS. The auther claims the same. Krugman chose a different approach which the author has skewed.

            Of course you have experienced inflation because of what? Oil which is controlled outside of the US? 50% of your food which is imported? From China with rising labor costs? Tell me how do you have control of external costs such as what I have mentioned?

          3. Anarcissie

            My guess about current inflation is as follows — I oversimplify again: Government pops big wad of money out of the void, gives it to rich people. Rich people cause money to vanish into myths like stock market, accounts, collectibles, used to do real estate but scared now. Poor remain poor, because they didn’t get any, also money is of dubious value in relation to labor, real goods, etc. since it is unconnected to. However, Chinese see quantities of money sloshing around briefly, get nervous, so they let renminbi float upwards (which some other people like anyway), try to ease out of dollar. So now cheap Chinese, Mexican etc. crap upon which we poor folks depend because we don’t make things any more goes up in price. Rinse; repeat.

            Oil? I see lots of people tooling around in SUVs even here in the big city. There can’t be too much of a problem.

            I think ‘we’ have to resign ourselves to the decline of ‘our’ money and well-being, it is ‘our’ reward for voting for Saint Reagan and all the other wise and holy men, but it doesn’t affect my question. Which I guess is unanswerable.

          4. Calgacus

            Hence my question: why, if employment is an unalloyed good, but in short supply, would ‘we’ not want to simply distribute it more equally by, say, shortening the work day or the work week? But if (un)employment is unimportant, then of course ‘we’ don’t need to worry about it.

            This is not a rhetorical question.

            Yes, employment is an unalloyed good, but it is never in short supply. Economies should always be run to fully employ everybody who is willing and able to work. This is very easy. Unemployment is always and everywhere a decision of the government to unemploy people. It is always and everywhere a decision to perform human sacrifices at the altar of what Warren Mosler calls Aztec economics.

          5. Anarcissie

            Actually, I don’t think employment is an unalloyed good. Many people are employed doing destructive, antisocial things. The physical world being finite, at some point we’re going to have to stop screwing it up just to make money and get the better of one another. And so on. However, in this instance I was curious as to why the supposed unalloyed good couldn’t be more evenly distributed.

      3. F. Beard

        …the issue still goes back to the allocation of productivity gains since the late seventies which has been skewed away from Labor. run75441

        Via loans from the counterfeiting cartel, the banking system? Why “share” wealth and power with the workers when you can simply steal their purchasing power and use it to automate their jobs away?

    2. Mezcal Head

      Krugman is a NYT embed, I’m not sure why so much time is spent on nit-picking his scratch. Does what he write determine policy in some way? Crudely speaking, the sun doesn’t shine forth from his backside. Why the enourmous spending on Military endeavors remains taboo at the Corporate Dreck is deliberate misiformation. Surely this endless spending impacts employment for the average bloke and blokess. Ya vol?

  8. Conscience of a Conservative

    Inflation does weird things most of which are not beneficial and downright distortive. In the 1970’s Israel experienced massive inflation but also had wages that were indexed to it, so what happened next? Well Israelis are nothing if not adaptive, so they would contstantly borow against future wages and pay back wiht cheaper dollars. In sum, there was no incentive to save.

    I also take umbrage at the notion of eroding the value of debt to promote private borrwowing. Since it ignores the reality that this is code for bailing out the banks and taxing private investors, pensions and retirees, and ignores that higher prices are borne dispropotionately by the working and middle class, who don’t have the financial flexibility of the rich in dealing with it.

    By encouraging inflation and ensuring that fixed income yields don’t cover anticipated or actual inflation Bernanke and the Fed are offering those with the least financial flexibility a Morton’s fork. They can either consumer their savings and leave nothing for a rainy day, or they can invest in CD’s that pay 1% and see their balance eaten away by a dollar that continues to lose purchasing power. In the end it’s a slow death or a quick death. That Bernanke and Krugman are so non-challant about this, sugests that both are ivory tower and out of touch.

    By the way…Yoram Bauman just updated the religious version of “Shit happens” to to the theme of economics. Of particlular interest he defined classical economics as “shit does not happen” and Kruman economics as “shit happens because of the Republicans”.

    1. F. Beard

      Well Israelis are nothing if not adaptive, so they would contstantly borow against future wages and pay back wiht cheaper dollars. Conscience of a Conservative

      How is that even possible in aggregate unless money and/or “credit” is created?

      In sum, there was no incentive to save. Conscience of a Conservative

      Because of money creation (either exogenous or so-called “credit”). Otherwise, real interest would have flowed from the borrowers to the savers.

    2. Defiant

      Note that all these economists point the fingers are something at multiple directions, but the Fed. It could be a liberal economist like Krugman or a conservative one, but they will never point the finger at the Fed for creating the debt and letting it flow into the economy.

      We talk about inflation, stagflation, wages, polution, the Liberals, the Conservatives, the blaks, the whites – but never the FED. Somehow the Fed seems to squeal out of the discussion.

      Let’s start redirecting the energy folks. The damn is still open and the water is still flowing.

      1. Conscience of a Conservative

        The Fed is a huge source of funding for classically trained economists as a huge source of publishing. Why bite the hand that feeds? And anyone that espouses a school of economics not of classical teaching is a heretic.

    3. Con Jobs

      Gold bugs take umbrage at anything that doesn’t include the rapturous delusion that burning everything to the ground will purify it. You disagree with both Dan and Paul but not that Paul. The extreme right-shift with some of the kids is terrifying, for the appeal of brutality is simple. I’ll buy that for a dollar, if you only lower your post count.

      1. F. Beard

        Gold bugs take umbrage at anything that doesn’t include the rapturous delusion that burning everything to the ground will purify it. Con Jobs

        You’ve nailed it! “The system is crooked” they (correctly) say but the innocent victims must suffer nonetheless to “purge the malinvestments”.

        Add to that the hypocrisy of desiring “fiat gold” – a government enforced/backed gold standard – and one has a disgusting picture.

        1. Rcoutme

          Yeah…one with Vlad Putin as our Chairman of the Fed (Russia is the #1 producer of gold)

      2. Defiant

        Who said anything about gold?

        You think we are trying to burn things to the ground for the sake of purity? Well, when it burns by doing what Bernanke and Krugman suggest what will Keneyesians say?

        Obviously the “let nature take it’s course” approach has not been and will not be considered at any point – until, the Fed is caught between 2 swords. I do kindly ask for something though – do NOT point the fingers at us when the Bernanke and Krugman route destroy what’s left. We asked for a stop in 2008 when the national debt hit 8 trillion and we are now hobering at 16 trillion.

        We both know what will happen – Bernanke will be caught in a position where he will be unable to do anything further (Keyenesians will be screaming that he is not doing enough), the system will fail, and law and behold, it will be the fault of people like me that have been screaming for a stop to exactly what has caused the issue. Isn’t it easier to put blame on others?

        The issue today is not labor, it’s not abuse by corporations, it’s not inflation, it’s a world that lives in a fantasy with unicorns flying around where there is no responsibility from the Top (Fed) all the way down. Economists are the first in line, as they can see the cliff clearly, but do I pay their bills?

        These are facts, not assumptions and have zero to do with gold and everything to do with personal responsibility.

        1. F. Beard

          We asked for a stop in 2008 when the national debt hit 8 trillion and we are now hobering at 16 trillion. Defiant

          What national debt? The “debt” of a monetarily sovereign nation like the US is ITSELF a form of money. There is no debt! What there are are INTEREST PAYMENTS and they should be abolished by exchanging brand new fiat for the “debt” as it comes due. Moreover, all future borrowing by the US Government should be Constitutionally forbidden!

          Nor should the US Government ever have a balanced budget since it is a money issuer, not a money user.

          1. Defiant

            Agree with you on the government borrowing having to stop for funding, but allowing the government to issue money will make matters MUCH worst. Your statement is missing a key ingredient – money does not come from unicorns flying in the sky. Rather it comes into existence when a good or service is exchanged for another. The money is simple a tool that can be use to make the exchange easier. But it is NOT free.

            The US government cannot just simply create 150 trillion of money – well technically it can – but it will destroy the value of the currency. As stated on my previous posts, you can create as much currency as you want, but you cannot create labor/capital. You can add 3 gallon of water to an ounce of oil, in the end, you will still have an ounce of oil. Whether you want to believe it or not is another matter.

            Saying that the US does not need to balance the budget is incorrect – the US needs to spend what the tax payer can afford to spend and not a penny more. Devaluing the currency by issuing more to pay for spending and increasing taxes are the same. It is a tax and it is stealing from the tax payer.

          2. F. Beard

            , but allowing the government to issue money will make matters MUCH worst. Defiant

            Wrong! Government is the ONLY ethical source for government money. The problem is that government money is de jure and de facto legal tender for private debts too.

            We need coexisting government and private money supplies per Matthew 22:16-22 (“Render to Caesar”). And before you say “we owe Caesar nothing” read Romans 13:1-7.

          3. F. Beard

            As stated on my previous posts, you can create as much currency as you want, but you cannot create labor/capital. Defiant

            Then gold mining under a gold standard would be pointless too, correct? Or is some money creation good?

          4. F. Beard

            Devaluing the currency by issuing more to pay for spending and increasing taxes are the same. It is a tax and it is stealing from the tax payer. Defiant

            1) If prices don’t rise then no one has cause to complain.

            2) Government has the right to tax – even by inflation if need be. I agree that this is not good under normal circumstances.

            3) Deflation is a means to steal too. Since the banks are not lending then they are effectively stealing by deflation.

          5. Rcoutme

            Defiant, you do not seem to understand how the government pays for things. The IRS does not tell the Treasury that it has collected tax money so now they can go ahead and spend. In fact, if you pay your taxes in cash, the IRS will shred the money!

            As for the USA having a balanced budget: if the banksters were not permitted to create loan money out of thin air (a very bad practice, btw), then the only way that the economy could expand would be by government deficit spending. Meanwhile, in net the government having a balanced budget (or worse, having a surplus) right now would REDUCE THE MONEY SUPPLY. It has to–by definition! That means that the net savings of the private sector would have to go down (or net borrowing go up). That is algebra, not opinion.

          6. jonboinAR

            >>As stated on my previous posts, you can create as much currency as you want, but you cannot create labor/capital.<<

            If my understanding is correct from my admittedly shallow though pretty steady reading of several economic blogs, there is actually a goodly amount of idle labor/capital out there. The problem is that since a lot of it sits idle, and a lot of the labor that is being used still, it is argued, gets paid less than it might, so maybe has less "purchasing power", as F.Beard might say, than it needs to, there is a shortage of demand in the economy, hence labor continues to sit idle, a negative feedback loop, you'd call it?

            How about this for a solution: I picked this up a couple of threads back from the poster, is her name "Ambient"?, who pushes the green candidate sometimes, but I glommed onto it because it's something I've thought as well and promoted once or twice. The answer, or part, is old fashioned industrial protectionism. The demand here has collapsed partly because our factories that used to employ Americans have been shipped overseas. Once was a time, I understand, that our government used to apply protectionist policies in order to promote American factory building. I also understand that many of the foreign economies where it seems our industry has gone have used protectionist policy, although perhaps a somewhat roundabout sort, in order to aquire these. So it's not unheard of, just that somehow our country isn't allowed to in the name of "free trade".

            Well, first of all, to heck with that. I simply don't believe that we can have a robust economy built simply on retail. I think that trying to do so points out what has actually happened to a lot of the wealth in this country the last couple of decades. It's migrated overseas partly, and probably mainly into the pockets of whomever owns those factories, be they American citizens or foreigners, I don't know. It HAS left the average American citizen's bank account, hence no demand, hence labor/capital sitting idle, a depressionary unemployment rate, and many discouraged and anxious American citizens.

            I don't wish to advocate trade war if it can be helped, but I'd rather that than have my country slide without a fight into second rate status. I nominate here a slightly more nuanced perhaps? approach, that foreign competitors might be able to accept as the proverbial offer they can't refuse. Tie the question of imposition of tariffs in each case to a minimum wage and also to an application of environmental standards at each of the factory sites. In other words, stop allowing labor and environmental arbitrage be the reasons for American factories to be dismantled.

            I have nothing against other countries developing their industries if, by paying their workers what I consider to be a fair wage, they allow a middle class to grow in their economy, someone I can trade with. Otherwise what's ruining us, really, is our industrial capacity being "hollowed out", as they say, not inflation/deflation, a housing bubble or credit bubble. Those are symptoms, not the cause which is that "sucking sound" that Ross Perot correctly described and predicted all those years ago.

            So MAKE the factory managers, wherever they are, since it's become, somewhat, a worldwide economy, pay enough to make consumers of their workers, and take precautions that they don't destroy the environment wherever they should set up. We have the power to do so with the threat of removing ourselves as a market. What are they going to do, now? There will come a day, probably, that we don't have this option.

          7. Managing Director, Capitalist Collections

            “Defiant, you do not seem to understand how the government pays for things… the government having a balanced budget (or worse, having a surplus) right now would REDUCE THE MONEY SUPPLY… That means that the net savings of the private sector would have to go down (or net borrowing go up).”

            That’s exactly what I was explaining to Defiant yesterday. Given the Tea Party’s fixation with inflation, President Obama has implemented a “no new money” policy, which policy announcement somehow coincided with the vacuuming up of customer accounts at MF Global.

            Now, so long as the thrifty savers in Greenpoint and Williamsburg keep working second jobs on the weekend, parasitically draining the pool of currently existing pixels that rightfully belong in the margin accounts sold by the gang in Cobble Hill that’s ready to relocate to Manhattan, then Capitalist Collections is going to have to get more creative locating new sources of funding.

            When I was at Vanguard last week, I reminded John Bogle’s associates of that old psalm about how God “helps those who help themselves” and they, like Governor Corzine before them, readily agreed with President Obama’s “no new money” ethic.

            I have another appointment there this coming week– right after my cold calls at Fidelity– and I expect to have great news for Defiant on the status of the Cobble Hill Relocation Fund by next weekend.

            By the way, Defiant, would you mind terribly letting us know where your pixels are invested currently? I’ve been broadly polling people and if it turns out that everyone is in debt, then Capitalist Collections might have to tap into the paperwork mess at MERS and repossess your house.

            I don’t see any reason why the Cobble Hill gang can’t telecommute.

          8. Defiant


            We both know that money/currency is not just the paper in our wallets, but also debits and credit on the Fed’s balance sheets. The paper is a representation of the currency.

            Yyou can create currency out of thin air, but not capital/wealth. Wealth exchange is supported by currency. The wealth is created slowly over time. Capital/wealth creation comes from work/effort/producing. It is not just hitting a stroke on a key board and creating 10 gazillion dollars. While currency is created with the stroke of a keyboard/printing.

            Obviously you cannot grow the wealth this way, but you can have as much currency as you want. As a whole, it won’t make you richer nor poorer (technically it will make you poorer as creating the paper will carry costs), but you will have more paper in your wallets and higher digits of debits/credits.

            I hope this clarifies.

          9. Defiant


            Honest opinion is that it is not easy to fix a broken economy, especially when everyone is un-willing to share part of the responsibility.

            There are a number of things that our representatives in Washington can do to stop jobs from leaving. Perhaps stopping the tax benefits for companies offshoring jobs would be a start? There are other policies (stop using child/slave labor and producing pollution if you want to operate and sell in the US???) that are as broken as this one that have potential to stop the bleeding.

            I answered someone else on this same thread, my general opinion is that in the end, companies seek a stable economic, political and social echosystem. The US is currently it. Shall we get short-sighted by false promises (tarrifs/blockades/etc), we can lose it easily.

            Another item we need to be conscious about is that we’ve benefited greatly and will continue to benefit from global trade. I think it is also time to face the truth and for the US to compete with those countries. This may seem impossible in some cases (how do you compete with Chinese wages?), but there is no way around it and it’s a market force we cannot stop anyway. Trying to stop it will likely make matters worst.

  9. Bam_Man

    Exactly. Krugman, Bernanke and all these other PhD’s are ivory tower academics who are completely out-of-touch.

    Thinking that “inflation” is going to be the solution to a problem that has income stagnation as its root cause is pure insanity. Living standards for the vast majority will fall even faster than they already are.

    The fact is that this jig is up. Good luck creating inflation in an already debt-saturated economy where real wages are stagnant (at best) or falling.

    Invoking the inflation mantra is just a desperate attempt to somehow try to make unpayable debts “money good” in nominal terms. Sorry, ain’t gonna work.

    1. Jim Haygood

      ‘Congress could pass a law directing the Fed to credit $500 billion to Treasury’s account, and then pass a series of spending bills directing how that money is to be spent. No new taxes; no additional borrowing. The direct fiscal approach might be inflationary, although the inflationary pressure from new money chasing goods and services in the market should be offset by the expanded volume of goods and services made available to meet the increased demand. — Dan Kerwick

      For this scenario to come true, the entire economy must consist of dolts, dupes and simps, who mistake a temporary liquidity injection for a permanent increase in output.

      In the real world, such recklessly unsustainable monetary policies provoke not capital investment, but capital flight.

      C’mon, Dan — acknowledge your intellectual debt to Charles Ponzi. The sheeple need to be swindled by all-wise central planners — but it’s for their own good!

      1. F. Beard

        For this scenario to come true, the entire economy must consist of dolts, dupes and simps, who mistake a temporary liquidity injection for a permanent increase in output. Jim Haygood

        What Dan said was true. New money does normally increase output. How the heck do you think banking lending works?

        1. Defiant


          Does a corporation produce because new money is created or because there is demand for a product or service? I hope the corporation is producing to satisgy demand, thereby making money/profit. You can create money, and if the money sits in a hole you dug in your garden, it will not go anywhere.

          To answer your question about whether a form of money is good, yes, of course – I think I have made that clear on my posts. As mentioned, money allows for consumers/corporations to provide a service, store their gained effort/wealth, and use it at a later date. It also makes it easier when exchange a cow for eggs and chicken.

          How much is required and at what price? the market should decide, not a few fools sitting in a room. The market knows what currency is best, what interest to charge for a certain risk. Having the Fed meddle with rates and value of debt/credit only makes matters worst.

          A a gold peg is more efficient than a fiat regime because it’s easier to see politicians for what they are, liars that make promises that the pocket of the tax payer cannot meet. A gold peg makes it real easy to see when the currency is being devalued, and the masses will see dramatic rise in prices as a result and will quickly demand answers. All this is hidden via a fiat regime, as it is slowly done.

          To answer the question about deflation. Perhaps you can find a few examples of where deflation is bad, but I will point out some obvious reasons that deflation is the natural course of things.

          In an economy that is becoming more efficient, more productive, it takes less to produce more. This net gain for society and should result in a drop in prices to the consumer (consumers should get their share via a drop in price), which is good, unless, again, you would rather pay 100 vs 10 bucks for the same item. This is where the wealth is being ripped off consumers because you do not see this gain. You dont see it because your prices don’t fall, they rise. Well.. why do they rise? Because of new debt being created to fund government spending/bank profits, which chases those new goods and services, thereby raising the price. Do you really think it’s speculators driving the price or oil – or rather liquidity flowing into the oil market?

          We ignore the facts, and rather believe in fantasy and unicorns because it suits our agenda, but this does not negate the facts. These are the facts, and there is no way around them.

          Again, corporations and rich are benefitors of this process but are not the cause. The cause are those allowing the devaluation of the currency, and the governments allowing risky/irresponsible/unethical behavior. Given the proposals I’ve seen, the 99% are no different than the 1%. Both groups want more for themselves. It’s all about me.

          Our system works folks, the ones in charge are not doing their duty and enforcing responsibility. Perhaps we need to go back to first grade as a nation and learn about personal responsibility. The government should be there to enforce a fair market for all, not for the few rich, nor banks, nor any other kind of bailout – the government should play the role of a judge and be inpartial.

          Instead, the 1% gets richer, a huge percentile living of government spending lives handsome worry free lives, while the REAL middle class gets squeezed dry. It’s kind of interesting that the biggest chunk of the economy and the country does not get representation.

          1. F. Beard

            A a gold peg is more efficient than a fiat regime because it’s easier to see politicians for what they are, liars that make promises that the pocket of the tax payer cannot meet. A gold peg makes it real easy to see when the currency is being devalued, and the masses will see dramatic rise in prices as a result and will quickly demand answers. Defiant

            Well, thanks for making it clear that you are a silly and fascist gold bug too.

            Do you claim to be libertarian too? If so, add hypocrite to your list of “honors”.

        2. Defiant


          Quite honestly I am not sure what you call somebody like me, but to be honest, it does not matter. What matters here is that the issues boil down to irresponsible behavior, whethere you are marxist, a fascist, a capitalist, it does not matter. You want the best for your family, and I respect that, I want the same.

          Perhaps I am wrong and a system where the government provides for us is what suits us better – although I dont see this as really being a government deed (gov takes from a hand to give the other – is that what we are? Useless pieces of meat roaming around in the world?

          Or are we productive and sofisticated individuals that want the best for our families and for society as a whole?

          Honestly, this has nothing to do with being poor nor rich, nor a banker nor a gardener.

          I cannot speak for other countries and societies but where I live – individuals go to work on a daily basis looking to produce the most they can. We know that although our jobs may be small in the scheme of things, but that small piece contributes to a better society.

          If we are the 99%, than why do we allow the 1% (gov politicians and rich corps) to continue with corruption? Why do we not only ignore irresponsible behavior – heck – we want more of it. When will we stop thinking of the unicorns and ask the politicians to enfore the rule of law accross the board?

          1. F. Beard

            Perhaps I am wrong and a system where the government provides for us is what suits us better – Defiant

            A gold-standard, besides being stupid, is government providing for usurers, hoarders, gold owners and gold miners. It is hypocrisy for someone to attack government and to be for a gold standard at the same time.

            And don’t pretend to be for families and for a gold standard. Government spending is precisely what they need right now and precisely what a gold standard would prevent EXCEPT to line the pockets of gold owners.

            Pious, hypocritical, opportunistic jackals is what many gold bugs are.

    2. Conscience of a Conservative

      Was not the housing bubble caused in part by gov’t thinking it can increased the home ownership rate without raising incomes levels first? That turned out well….

      1. Rcoutme

        This is partly correct, but not wholly. The prices of housing went up mostly because of a serious lack of standards in borrowing. The lack of standards was brought about due to the loans being bundled and sold into a nearly unregulated market. Since that market was so poorly regulated, investors bought insurance against losses. However, that insurance was COMPLETELY unregulated. In fact, Congress in its infinite wisdom passed a law specifically prohibiting any government entity from regulating that insurance (it was called credit default swaps, in order to get past the ‘insurance’ name).

        Now…since the banks had no ‘skin in the game’ when it came to bundled mortgages that they sold, they basically told their people to get more and more loans, regardless of the likelihood of the loan being paid back. In addition, there was some cheating going on, but that’s another story. Since the banks were simply creating loans (for fees) and then selling them to other people, they had no need for the loans to be good ones (i.e. ones where the borrower would likely repay).

        Next problem: investors who were buying these packages (called CDO’s) might not trust the banks to have investors’ best interests at heart (ya think???). They then relied on rating agencies to assess the risk of the investments. However, the people who paid the rating agencies to evaluate the CDO’s were the people creating the CDO’s. Thus, if Moody’s gave a bad rating to a bunch of Chase’s CDO’s, Chase would no longer use Moody’s. They would switch to S&P. This gave Moody’s an unethical reason to rate the stuff higher than it should have been.

        You can probably do the logic follow-up to what happened next.

  10. Jackrabbit

    Doesn’t this go back to the prior discussion of models?

    Krugman takes the “all things being equal” approach that is closely related to general equilibrium models.

    A dynamic model would be sensitive to the nonlinearity of current “imbalances.”

    Why doesn’t Bernanke increase inflation? Because that has knock-on effects that would be magnified by imbalances that he knows to exist. (To put it another way: he’s out of ammo – he used every bullet to defend the banking system.)

  11. Hugh

    Solutions that ignore the reality of kleptocracy won’t work. Kleptocracy is a system, a construction of our elites. Any real solution must be systemic and must deal with those elites.

    The problem is not that Krugman is having a bad couple of weeks defending neoclassical economics, the main intellectual cover for looting by our elites. It is not with the Fed. It is not inflation or the lack of it. Nor is it with the absence of fiscal stimulus. All of these things are elements of a greater kleptocratic whole.

    The Fed is not well intentioned. Krugman is not mistaken. Corporations are not waiting for price signals. Politicians are not holding off spending for fear of deficits. What we have is a criminal enterprise, and each segment of our elites is doing its part to promote, execute, propagandize for, and/or distract from it.

    We should stop pretending that the economy and those who run it are interested in us and will do any other than loot us. There is always this premise: given that the economy is fundamentally sound, then policy x,y, or z would be appropriate and effective. But the premise is false. The foundations of the economy are not sound. Any policy based on it will simply become a new locus of looting.

    1. Conscience of a Conservative

      Kruman and the neoclassical school of economics while bringing many important insights fails in too many regards, because it ignores the banking system as it is, does not discuss fraud and its role in our system, and has not come to terms with zero bound interest rates or out of control State budgets.

      In short economics is not physics, so we can’t treat it as absolute and need to play wiht the different models as presented by not only Classical Economomists, but Austrians, MMT’ers, Behaviorialists etc

      And we can’t do as Krugman suggests shrug our shoulders and say everything bad is the result of a Republican policy.

    2. Defiant

      I disagree, Krugman is wrong…

      If excessive credit is the issue, how can more credit fix it. When was the last time throwing gasoline at a fire stopped the fire?

      The issue is as clear as water, but Krugman and a few others use fancy words to fuzzy and confuse the populus. They sure sound smart, but know full well they are spewing nothing but lies. They know full well where we are headed and dismiss fixing the issue.

      BTW, a fiat regime constitutes fraud and we all know it.

      1. F. Beard

        BTW, a fiat regime constitutes fraud and we all know it. Defiant

        Inexpensive fiat is the ONLY ethical money form for government debts. Full legal tender fiat, while normally unethical, is precisely what we need to bailout the entire population from debt to the counterfeiting cartel. Full reform can wait till after that.

        What are you trying to do? Prevent this Depression from being ended?

      2. Doug Terpstra

        I think Hugh’s point is that a better arrangement of deck chairs, say for instance in a circular array for more equitable participation, just won’t refloat the Titanic at this point. Ultimately, however it’s created, whether it’s dropped from helicopters or shoveled directly into Goldman’s sacks, money is in essence a measure of confidence. Once the system is widely discredited as fraudulent to the core and an exclusive tool of neo-feudal lords, confidence is destroyed, the printer output becomes irrelevant. We’re not far from that point, when the revolution Charles Hugh Smith envisions is inevitably set in motion.

        Anyway, isn’t inflation already here, where it counts most, in commodity speculation, food and energy and about spiral out of control? And isn’t the Fed’s true purpose, however vigorously denied under its official charter, to buy whatever toxic assets and bad casino bets that their cartel members want to unload, inflate those away and destroy peasant savers thru zero-interest money for gamblers seeking obscene windfalls? Now that we know how and why money is created, unconstrained, out of thin air, exclusively for the benefit of the one-percent, is this inevitable perception incorrect or too simplistic?

        1. skippy

          Yep, the only action happening, is to save the betters of this world and not the lessors.

          Skippy… and all without an eye to the state of the joint we call home.

      1. Defiant


        I’ve made it clear on multiple posts that I disagree with irresponsibility whether caused by rich/poor/etc…

        The folks on this board have huge energy and I believe that you can all make a difference if we take that energy and direct it at the cause of the issue. In the end, we both want the same thing, a better life for our families, and more economic friendly environment.

        1. F. Beard

          I’ve made it clear on multiple posts that I disagree with irresponsibility Defiant

          You presume too much to judge other people’s so-called “irresponsibility” in a rigged game they did not create.

          1. Defiant

            Well than perhaps if we all act the same way, things will somehow balance out and get better. This is for sure the way were are headed anyway.

  12. Economic Maverick

    Interesting stuff. So consumer inflationary “expectations” may have the effect of consumers hoarding yet even more cash, and deleveraging faster, and thereby NOT generating any real inflation of the variety that can lift wages! Sounds painful.

  13. Travis

    I made a related post on the subject today.


    Basically I ask the question why did Solow think that non accelerating deflationary rate of unemployment (NADRU) was so heretical:

    “I don’t know anybody who would even lie out in the sun, let alone be burned at the stake, for the belief that if the unemployment rate is U* plus epsilon and we wait long enough, there would be accelerating deflation. That part no one believes”

    What if we think about the present as a horizontal long run Philllips curve?

  14. Because

    Man, this thread is dumb.

    Either get it or not: Krugman is talking about increasing demand. Nothing more or less. Krugman is not a “traditional” Keynesian. Like many today, he is a mish mash of beliefs.

    He thinks boosting nominal spending will increase demand, increase employment and thus “increased inflation” would be good. Hardly new, Hayek would support the same thing.

    People like Defiant and CofC should have their IP’s checked. They may be foriegn terrorists looking to destroy America and create a plutocratic dictatorship. A deflationary spiral they seek.

    1. Defiant

      Not funny one bit – it is scary how you swiftly and cowardly call me a terrorist for expressing my first amendment right.

    2. Defiant

      I forgot to mention.

      Note that not one of the suggestions proposed by what you call terrorists have been used by either the Fed nor the government.

      But I can guarantee that fools like Krugman will re-direct blame to the only solutions not implemented when shit hits the fan. Not only irresponsible, but corwardly….

      It won’t matter, the chips will fall where they may.

      1. F. Beard

        Yea, let’s shrink the real economy to the size of the money supply to the size of the real economy to the size of the money supply… You know, “to purge the malinvestments”.

        You are stuck in a gold standard mentality.

        1. Defiant

          Than perhaps we should push for malinvestments. I will again bring up the point, currency is not the same as capital/wealth.

          As a citizen, you would like to maximize the returns on the capital/wealth irrespective of who is holding it because it benefits society as a whole.

          Not purging bad investments will eat up the capital/wealth. Is that what we think it’s best for our families/society?

          1. F. Beard

            I will again bring up the point, currency is not the same as capital/wealth. Defiant

            You appear to be opposed to money creation. But what about money destruction? The money supply is 97% “credit” which is lent into existence and which is destroyed as it is repaid. Do you think the economy could tolerate a 97% reduction in the money supply?

          2. Defiant

            Let the market dictate how much money supply is needed and at what price.

            The Fed does not know, the congress does not know, I do not know, you do not know how much is required.

            There is a reason why we are not discussing lack of oranges in the market here.

  15. Peter K.

    The Fed could do more but won’t because Bernanke is being bullied by the banksters and rentiers. They’re not out of ammo.

    Kervick’s policy suggestions are unfeasible and demanding unfeasible solutions is almost the same as doing nothing. Might was well ask that each citizen get a unicorn for all the good it will do.

    Krugman was calling for the Swedish model/ nationalization of banks and to call him “neoclassical” or “centrist” is ludicrous.

    1. Defiant


      Can you tell us how much is “more” and what is the expected result please.

      Please note, Krugman stated bailout of banks was not enough, QE1 was not enough, QE2 was not enough, QE3 is now not enough. What is enough is the question?

  16. Very Serious Sam

    I never understood why some leftish economists want a high inflation – Krugman has, AFAIK, talked about 4 % over a period of some years.

    This would devalue pensions and incomes of the low and middle classes. While the rich, who normally hold only a small portion in cash, would barely be impacted.

    At the end of the inflation spree, the poor and middle class would have less, and the rich relatively more. Just the nation’s debt would have shrunken a bit. Not a good deal for the majority of people.

    1. Roland

      As a leftist myself, I’ve never understood that either.

      As Kervick argues, if you can’t negotiate yourself wage increases in line with inflation, then the inflation screws you.

      It doesn’t help that Krugman buys into the BS of the Boskinized inflation stats. He really does think that inflation is very low right now but most of us are experiencing significant moderate inflation even in a stagnant economy.

      It also doesn’t help that in a society with a big class gap, you find that there are class-differentiated inflation rates, since rich people have very different consumption habits from the working class. This has major implications for any sort of inflation-targeting monetary policy.

  17. Linus Huber

    As long as economic considerations are seen to be more important than the spirit of the rule of law, we will not succeed, whatever measures we apply.

    Rules and laws have the purpose to promote behaviour that is beneficial to society and to punish unethical behaviour that hurts society. The latest activism by Central Banks and Governments in the Western World run opposite to the spirit of the rule of law. The transfer of risk from the investor to the general population is not merely a case of moral hazard but affects the whole fabric of values that were responsible for the success of Western society.

    1. Defiant

      Simple yet truth and hits the core issue. I agree with you.

      These models and technical explanations are very complex and fuzzy Eisntein would have difficulty understanding. Heck even the the tax law is same..

      Everyone is looking to figure out how to get a piece of the pie, while ignoring the core issues. Nobody cares about the law – as long as my agenda is met, who cares which way we go about it.

      Excellent observation.

      1. Rcoutme

        Einstein is the one who said that compound interest was the most powerful force in the universe. If our law makers had heeded that warning, we would not have allowed the banks to create their own money out of thin air (by lending it into existence). We also would not have continued to sell T-bills.

    2. Calgacus

      Defiant, Linus, there is much to what you are saying on morality and law. But it leads you to 100% incorrect conclusions, because you simply do not understand what you are saying. Because implicit in your arguments is the commodity theory of money, which is an incredible cognitive error, comparable to The Man Who Mistook His Wife For A Hat.

      But this insanity is the disguised foundation of the economics of the past few decades, since everyone but Lerner and Minsky and a few others forgot the foundations of the Keynesian/Institutional era. Things that “went without saying”, that everyone knew. So nobody said them, everyone forgot them, and went back to the insane ravings of neoclassical economics. Happens all the time in all areas, especially philosophy, but rarely is there as bad a case of amnesia as in economics. Usually the Young Turks are right and the Old Fogies are wrong. But sometimes the Young Turks are just reviving idiotic ideas that never did and never will make sense.

      If excessive credit is the issue, how can more credit fix it? More credit is the only thing that could conceivably fix excessive credit. Gasoline on a fire is not a good metaphor, unless you call private debt gasoline and base money= government debt water. Then government debt, real money does put out the fire of private debt. A simpler metaphor is tossing a ball from A to B. If A has tossed a ball, extended credit to B, then the ONLY way for this to be “fixed” is for B to extend credit to A somehow, for B to toss the ball to A. Credit/debt is only cancellable by credit/debt going the other way.

      What F Beard and Dan K are proposing is not immorality, but morality, for the government to live up to its responsiblity to eliminate the unemployment it has caused, through either its overtaxation or insufficient spending. And this is easy to do non-inflationarily, and just printing the money, low rates, “loose money”, would most probably be less inflationary than what is misnamed “government borrowing”, high rates, “tight money”. It is responsibility, not irresponsibility, for the government to do this, to spend more now, for the government to not make insane demands on people, which can only be met, and easily, by the rich, and therefore create a situation where there are only the rich, who do nothing, and masses of the poor, who do all the work. It is not your morality which is wrong, but your accounting.

      1. Defiant

        Excellent point,

        I think you hit a good point, but I think the old Fogies are wrong this time and the Young Turks will take the gold.

        The issue is not liquidity, it’s solvency and structural (well explained by Ackerman on the thread) issues. If throwing liquidity, slashing interest rates was the cure, we would have never been in this mess, but here we are.

        The Fed can print as much as it wants but banks will not lend to individuals/institutions that are bankrupt. It’s analogous to printing money, digging a hole and placing it there. Not going anywhere.

        BTW – I am 100% sure that anything the Fed does will not resolve the issue and the more money we throw at it, the worst off we will be. The root cause of the issue is Federal Reserve intervention on the markets, more intervention will only make matters worst because the nation will go deeper into debt, while lending does not happen, and unemployment remains high.

        God help us if some theories being thrown around are actually implemented by government, like paying off consumer debt, and giving each american 1 million dollars. As Ackerman said above, consumers will quickly go out and spend the money, get themselves in more debt, while the newly issued currency devalues existing currency. i.e. we are now Zimbabwe. I know, I know, some will come with the “but this is sovereign money”, guess what? The more you have of any currency, the less value it holds and Zimbabwe also issued their sovereign currency – does not work.

        To fix the issue:
        – Eliminate the Fed
        – Eliminate fractional reserve lending (which constitute fraud) and credit rating agencies
        – Establish sound money policies based on a sound currency (can be whatever currency the market choses)

        In terms of structural unemployment, unfortunately, there is not much that can be done. As we both know, saving a job is not really saving a job when you have to charge 100 (minus 90 administrative costs) to pay someone 10 bucks. It definately sounds good, but looks terrible when put on paper and makes matters worst if you see that 100 dollars as spending power somewhere else in the economy. I’m all for government taking an enforcer role and enforcing responsible behavior in the markets and on behalf of the people, but not an active roll in the economy. The market has proven it can handle marketh mis-alocation efficiently by shutting down inefficient individuals/corps and letting efficient ones grow.

        In regards to the China example, it is a sad situation that we have to partner with these countries. The US should continue to make a case that China is not playing ethically (slavery, pollution, etc), and force concessions. We are giving them business, why not ask in return? I’m sure they would suffer as much as we would if we stopped purchasing some slave produced items.

        I am also hopeful that people in China will slowly but surely, just like in the US, ask for change soon enough. Putting tarrifs and blockades have proven to be total failures, and the cost will end up being pushed to the consumers.

        In regards to college,
        All I can say is that I wish I went to school in the 70s. Unfortunately, I was too busy being borned back then.

        1. K Ackermann

          In your comment before, you addressed efficiency and competition, but efficiency through labor arbitrage is zero sum (ignoring externalities), with the “winners” leading a race to the bottom.

          Efficiency must be persued as it drives innovation, but labor has to be removed from the efficiency calculation. When a welding robot replaces a person on an assembly line, it’s tough for that person, but great for her kids because they will be able to get a job designing and building welding robots. If instead the assembly line was moved to a different country where people worked for a bowl of rice a day, then the negative externalities are immense and long-lasting.

          The solution right now, in our case, is to impose tariffs on imports based on some index – such as the Big Mac index :-)

          You want access to our beautiful markets? Then you build your shit right here, because not only do we want full employment and a vibrant economy, but we also want to get back to innovating.

          I don’t believe for one second that protectionism is bad. Not in our case. Not with our beautiful markets. Just watch how fast companies would build shit right here for a taste of our markets.

          1. Defiant


            As you say, our markets are beautiful, strong and sophisticated. It’s interesting to see how even though our political system has been decading, our markets have remained recilient. Everyone wants to do business with us or in the US. But that beauty can be eaily tarnished.

            That beauty, I believe, comes from our open-ness to free trade. My opinion is you kill free trade, you are putting upward pressures on prices and downward pressure jobs.

            It’s hard for me to site here and offer a solution to pollution, slavery, trade issues with China. All I can say is that these things normally seem to sort themselves out and normally in the favor of the “good” side, in this case the US. Businesses normally seek an economically and politically stable ecosystem and I think in the end, many will return to seek it in the US – IMHO. Let’s not have a knee jerk reaction and make matters worst.

          2. jonboinAR

            I agree with Ackerman. “Ooh, tariffs! Don’t speak of them. They’ll cause a trade war, such a terrible thing.” I think we’re still in a position to dictate terms of trade, but not forever, and we’re foolish not to do so now.

    1. Hugh

      You have completely swallowed the koolaid. Our elites count on people like you who believe they are smarter than the rest of us. And how do you know that our elites are smarter than the rest of us? Why because that is what they tell you. They self-validate and self-credential themselves. Elite careers are just examples of the long con. They establish one of their members with a sinecure as Princeton, a column at the Times, heck they’ll even throw in a kind of Nobel, just so when this person tells us 2 + 2 = 16 there will be people like you that will go but, but, but, professor at Princeton, New York Times, Nobel, he must be right.

  18. Wyntunnel

    All I have to say is that it is amazing how concerned a good number of people are about the environment and justice and fairness and compassion and all that until they claw their way into the 1% at which point these all become the concerns of others.

    If loan making stops cold then the global economy will contract as no new money is loaned into existence to replace the money that is destroyed by deflation. This would have been less of a problem 5 financial crises ago… but if we just sit there and do nothing and let nature runs its course it will be catastrophically messy. I have always wondered why the men behind the curtain could not have deflation targets to gently ease economies back to health..well I know why, because this would mean allowing their crony banker and industrialist friends lose their shirts…

    Anyways Nature will runs its course one way or the other…but if history is any lesson, the harder we resist with our negatively entropic ways, the harder will be the return to the mean. And when we do return to something that is much more evenly distributed (for war and pestilence have a way of doing what the DOJ cannot) we have to ask ourselves: What kind of world do we want anyways? We can’t possibly allow every living person on Earth to have enough money to fulfill their every single desire or fantasy. The Housing Bubble demonstrated what happens when we unleash those forces. It’s as if we just gave George Lucas all the money in the world to make Star Wars prequels exactly the way he wants them without any contraints…

    1. skippy

      “All I have to say is that it is amazing how concerned a good number of people are about the environment and justice and fairness and compassion and all that until they claw their way into the 1% at which point these all become the concerns of others.”… Wyntunnel.

      Pretty much, its like watching some people help shove others into the wood chipper, so they might get a pat on the head, annotated.

      Skippy… just so they can live in comfort for the duration of *their* lives…. barf.

    2. Defiant


      Excellent observation. You mention that letting nature run it’s course sounds like a drastic move with huge economic repercussions. And I holeheartedly agree. It will have MAJOR economic impact.

      I think another question we should be pondering is the following. The Fed has been intervening in the markets for the last 100 years and more so after 2008. So we’ve had multiple programs including bank bailouts, QE1, QE2, QE3, TARP, and so many others I am losing count. In 2008, US debt was 8 trillion – it is now 16 trillion. Unemployment was 4.5 – it is now 8 (of course the real figure is much higher), and here we are still in the same situation.

      It should be obvious that whatever the Fed is doing will not work. So the question is not “letting nature run it’s course”, it’s when do we have to worry about the damage we’ve done. In my observations, the wall is not too far away.

    3. F. Beard

      We can’t possibly allow every living person on Earth to have enough money to fulfill their every single desire or fantasy. Wyntunnel

      What business is that of yours? What people honestly obtain is not your business. What you should be concerned about is dishonest gain of which there is plenty.

      1. Wyndtunnel

        Wow. I was expecting friction from Defiant and support from Beard. Go figure!

        Um…Is there a single Billionaire or Millionaire that has “honestly obtain[ed]” their wealth if you factor in ALL externalities?

        I fully agree with the MMT principle that sovereign governments should create money directly, interest free, and direct it where deemed necessary so long as there is sufficient slack in the economy. Of course for this to work America would need to come up with a much better system to determine what is necessary for under the current one it seems that universal healthcare, education and state of the art infrastructure are luxuries the U.S. cannot “afford”.

        And I AM mostly concerned with dishonest gain. I just think that the bar for what one can consider honest is becoming unbearably high as in…the Earth will simply not permit everyone to live in 10 000 square foot homes with a few other homes scattered around the world with the illegal immigrant staff to keep the places ready for the three or four weekends someone decides to drop in. I DO think that it everyone’s business. Even if acquired “honestly” I think that a valid philosophical argument could be made that there is a point where one’s carbon footprint becomes immoral.

        So…even if we can end the Fed, create “just” enough digital money so that everyone can get out of debt peonage, re-balance the global economy, break up the TBTF banks, jail all the banksters, fix the mortgage servicing industry, end America’s immoral military empire, etc… THEN WHAT? My point is that, like George Lucas, or Spielberg for that matter, more rather than less people will have no freaking restraint about how they go about spending their dough if there is no limit to how much they have access to. That’s just human nature (IMHO). Lucas made much better films when he was capital constrained. With those limits removed the resulting films were crimes against humanity.

        1. F. Beard

          Um…Is there a single Billionaire or Millionaire that has “honestly obtain[ed]” their wealth if you factor in ALL externalities? Wyndtunnel

          Maybe one or two, not many to be sure.

          THEN WHAT? Wyndtunnel

          Then the world does not end on our watch and hopefully not even on our grandchildren’s watch. And who knows? Maybe it will go on another 1000 years?

          1. Wyndtunnel

            I do think it would be nice to get off this stinking rock. Though I fear that would be a race against complete environmental destruction but for those who like to make bets…fuck..who couldn’t resist? .I suppose Branson is rolling the dice with Virgin Space. It would be a real shame if we didn’t get to sow our seed into the rest of the Universe where infinite growth IS possible.

          2. F. Beard

            I suppose Branson is rolling the dice with Virgin Space.

            It sure would be a roll of the dice – many rolls! It will take a broad, extremely well capitalized venture for man to have any chance of planting himself permanently off Earth.

            Ironically, we will have get Earth in order before such a venture is possible.

          3. Wyndtunnel

            F. Beard,

            You don’t happen to play drums for a certain lil’old band from Texas do you?

        2. F. Beard

          break up the TBTF banks Wyndtunnel

          Such small ambition! We should aim to reduce usury to an insignificant part of the economy not just break up the big banks. And remember, interbank lending and the Fed joins all the banks, even the small ones, and credit unions too into one huge counterfeiting cartel.

          1. Wyndtunnel

            No usury means no lending at all does it? Or does it allow for lending without interest? Is that where the common stock approach you are fond of comes in? Care to re-iterate how that would work in terms of redistributing capital for productive ends?

          2. F. Beard

            A universal bailout of the entire population till ALL debt is paid off is necessary and perhaps sufficient in the long run IF the counterfeiting cartel is abolished. Then corporations would HAVE to “share” wealth and power with their workers and consumers.

            But if not, then in addition to the universal bailout the corporations could be nationalized and their common stock equally distributed to the entire adult population to re-privatize them.

            Neither the universal bailout, nor the abolition of the counterfeiting cartel, nor the common stock redistribution should adversely affect the economy. Of course, all of this should be well thought out in advance.

          3. skippy


            Until you pass this by the major trading partners, it’s a moot point. Hell lets just be plain about it, the folks that make this world go around won’t have a bar of it…. full stop. So its just an academic debate in a vacuum.

            The last 40 years has a mass and it ain’t going to change trajectory because you fiddle with currency creation destruction ideology. To many people believe what they were told, indoctrinated with, lived their entire lives by.

            You believe in god yet can’t prove it, they believe also (cough USA is number #1 et al) and there’s the rub. See what happens when you create ideology’s which break apart down the road, hence the need to constantly reinterpret the word salads from antiquity, too fit the new empirical fact sets.

            Hell most Americans from the right side of the political spectrum are ready to throw them selves upon the cross, suffering is gods way of making me strong, prepare me for his future plan, its what Jesus would do. You know… onward Christian Soldiers… Marching as to War… With the Cross of Jesus

            Christians have to start a new crusader movement to fight the Jihadists that are now active in every part of the world! We must not wait for seven hundred years before responding to Islamist aggression like we did a thousadn years to go… lets not sleep walk our way to dhimmitude!

            suminvictus 3 months ago 9


            Bonus link…

            Amen Brother. And may it’s armies crush all other nations! YEEHAW!

            jeandepaul in reply to TheNavyseal852 (Show the comment) 4days ago


            Skippy… until the political landscape is changed… which will not occur until a sufficient amount of the population has a massive epiphany… the market gets what it wants at all costs (the market being a small group of trillionaires and lager group of billionaires vs. the rest of the world population).

            PS. You should go to Manila, check it out, building like crazy. Kicking poor people out of their homes to build 40+ story apartment buildings, then securitized into income streams et al, profit today! Risks is for the yield chasers.. cough public dupes, pensions funds, equity jockeys, etc.

            BTW a Western fellow commented on how good the local labor was… guys demolishing a old concrete drive way with 6 penny nails and 5 lbs. mallets at a relatives place, dollars on the day. How anyone with a bit of dosh had servants and how labor was so respectful of their betters, yes sir, yes madam. This is what capital wants and capital always gets what it wants… in the end.

          4. F. Beard

            Until you pass this by the major trading partners, it’s a moot point. skippy

            Such a believer in truth you are. NOT!

            Before change can occur, people must realize there are sound alternatives.

            Common stock and central banking were invented around the same time. Both have flourished but it is now obvious that one was good and the other evil. The idea of coexisting government and private money supplies was implicit in Matthew 22:16-22 but that idea has been buried for centuries along with the prohibition on usury between fellow countrymen.

            There is nothing so powerful as an idea whose time has come. Victor Hugo

            It’s coming together – MMT, monetary sovereignty, the non-existence of the national debt and Steve Keen’s universal bailout are the other ingredients.

          5. skippy

            Who are you talking too, a mirror, a hand full of others.

            MMT in your program only fixes the top up, with some chump change for the plebs that buy the song. After that? More growth, in order to maintain the herd? Hint… that was the problem last go around, too much unsustainable growth.

            Fish stocks are at a critical point (industry acknowledged), land clearance fubar, non renewable resource depletion + toxic side effects = future consequences, global food shortages (country’s overly dependent on offshore supply), water – water – water, the list and conditions grow exponentially every day.

            Skippy… No one I talk too or their associates, globally, think you live in the present reality.

  19. cell phone numbers go public

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  20. Samuel Conner

    Haven’t read all the intervening comments; pardon me if this is a repeat.

    “Higher inflation” is equivalent to “lower real interest rates”. That’s what Krugman wants; he has repeatedly written that a Taylor Rule would place the Fed target rate at somewhere around -4%.

    Michael Pettis has argued from the example of China that too low real interest rates (they are negative in China) punishes savers and, paradoxically, forces them to save more, depressing consumption and subsidizing borrowing, which ends up being misallocated (in China’s case, at least) to overbuilding of infrastructure and speculative bubbles. Savers have to increase their savings as a fraction of income in order to make up for the negative real interest rates in order to hit their target long-term savings goal for retirement. China’s consumption as a share of GDP is about 35%; Pettis reckons that this is a direct consequence of the financial repression of households through negative real interest rates.

    Punishing savers does not stimulate consumption; it represses it.

    Perhaps it’s another Paul Krugman FAIL.

    1. Defiant

      Excellent point Samuel,

      One item to note though, it did work in the US because consumers/corps were solvent and were able to get loans to finance spending. The American culture loves shopping malls.

      I think there is something not taken into consideration in the China example, it’s culture. Spending is part of a culture’s psychi and is not something that changes overnight. The Chinese are not as apt to spending as Americans are, that is what this boils down to. You can apply any economic model, etc and it does not matter. The Chinese will spend the way they spend and Americans will spend the way they spend. It’s not a black and white as in you do X and spending will go up and you do Y and spending will go down. It works in the US, but not in China.

      One thing is common in both economies though – you push liquidity into the markets, and there is a chance it will flow somewhere. That is what happened in the US with housing, and what is happening in China with infrastructure.

      1. Samuel Conner

        Another major difference is that there is still a significant social safety net and some employer funded retirement savings in the US. There’s very little of that in China at present; it’s all up to individual households to intentionally prepare for their future, sort of a Republican utopia.

        But I think that there is still a relevant lesson. There was a fictitious/transient wealth effect in the 2000s during the housing price bubble that stimulated borrowing (some of which was home equity withdrawal — according to Calculated Risk, Mortgage Equity Withdrawal peaked at around 7% of GDP before crashing after 2007). When the bubble popped, the wealth effect vanished and consumption fell (for many reasons, not just the vanishing the the wealth bubble).

        If people’s savings earned more, there would be a real wealth effect that would pass through into increased consumption (as it would in China). And at least some MMT advocates favor paying interest on the public debt (as opposed to leaving it all as Reserves) as a way of providing additional income to the private sector.

        There’s also some evidence from the UK, recently noted at NC, that QE, which crushes fixed income yields, suppresses consumption — presumably by suppressing income from saving.

  21. Matt

    “Rather than looking to central bankers and the banking system to accomplish a task for which they are not really cut out, we should turn our attention back toward fiscal policy as the primary tool for bringing the country up to full employment and keeping it there.”

    Sure, this is likely true – in an ideal world, where the levers of fiscal policy are controlled by sane individuals with a realistic understanding of economics and a desire to see the country prosper.

    Unfortunately, here in the REAL world said levers are controlled by deranged individuals with less-than-zero understanding of economics (supply-side, anyone?) and a desperate need to see the economy FALTER for political gain.

  22. Thomas M McGovern

    Some points and questions:

    1. If Krugman was an economist who had not won a Nobel Prize and subsequently didn’t have NY Times as his bully pulpit, would any intelligent person listen to him?

    2. I know that Krugman has been saying that the $trillions of stimulus so far has been insufficient, but is that any reason that more will work? When do reasonable people admit that the old Keynesian thing doesn’t work? Wasn’t that shown in the 1970s stagflation?

    3. There’s a lot of money in the system not being lent, but rather is sitting at the Fed earning interest for the big banks which have accounts there. It’s currently $1.5 trillion when the historical norm is $O (http://research.stlouisfed.org/fred2/series/EXCRESNS). If that money starts to move in the economy, is there not a good chance that the Fed will lose control of it and hyper-inflation will result? Or the Fed may drain liquidity too quickly, resulting in a depression? That’s what the Fed did prior to Great Depression I, and it resulted in that depression.

    4. As an example of what I consider his financial fascism and quackery, consider the advice he gave Japanese authorities about fifteen years ago as a way out of the long-term recession that Japan experiencing. He suggested that the Japanese authorities announce that the people had to spend a certain percent of the money in their savings. If they people did not spend that amount, the government would confiscate the difference! I don’t remember if he explained how the government would know that the money was spent rather than moved to some other savings account.

    1. F. Beard

      If that money starts to move in the economy, is there not a good chance that the Fed will lose control of it and hyper-inflation will result? Thomas M McGovern

      P = MV/Y

      Neither V, the velocity of money, nor Y, aggregate output, is likely to change much so that leaves only M, the total money supply (reserves + credit), as a possible cause of hyperinflation. And should M start to get out of control then the Fed or Congress could levy a 100% reserve requirement on the banks and let the US Treasury be the sole source of new money into the economy. So there is no significant hyperinflation risk.

      1. Defiant

        Sure sounds like a safe bet on theory.

        It’s like opening a damn full of water all the way – and expect the water to flow slowy and in a control manner.

        I agree with you, there is no risk of hyperinflation – the risk is an out right collapse of the currency and the nation.

        God help us should any of these theories find their way into congress… They’ve done enough damage without being in charge of the currency, just imagine how well they will do if they manage to get their hands on it. Zimbabwe might prove to be a better economy after all.

    2. Lambert Strether

      Krugman was at one point the only person in the mainstream media, literally the only person, to call bullsh*t on the Bush administration. But that was a long time ago, and unfortunately, Krugman hardly ever calls bullsh*t on Democrats, even when (as with The Drone King) Democratic policies are indistinguishable from Republican policies. So we can honor Krugman for some really important acts of courage and intelligence, while recognizing that sadly they were motivated by tribalism. (Also, I have yet to see the words “accounting control fraud” occur in Krugman’s column or his blog. Until it does, it’s hard to take Krugman’s views on political economy as anything other than of academic interest technically, though of course politically they obfuscate how the Obama administration is protecting criminal elites. See under mortgage “settlement.”)

      1. ibilln

        “Krugman hardly ever calls bullsh*t on Democrats,”

        Clearly…CLEARLY…you don’t read Krugman. He’s been complaining about the administration for, uh, years. So, your comments are, well, what was it you said…

    3. Defiant


      1. Unfortunately, most people listen to “mainstream” economists like Krugman. It doesn’t matter which one, pick any of them, they have the same/similar solutions. To make it easier for people to desifer the cause, they will throw in a couple of theories.

      2. That is the beauty. People are so out of touch with economics that what this man says has nothing to do with truth or reality. If it comes from them, well… than it must be true. Krugman, as well as the other mainstream economits know that it does not work but how do you tell this to the populus without causing mayhem?

      3. The money is not being lent because of structural issues, there are no credit worthy borrowers. Would you lend money to somebody if you knew they would not pay back? The banks are actually being responsible for once. There is currently little chance the money flows into the economy because consumers are still tapped out and insolvent. Should some of the theories being thrown around (pay off debt/give money to people), the money will flow right in, and yes – the Fed will lose control of the economy. As proven, the fed can print, but it cannot dictate where money flows or if it flows at all. The Fed does not know, nor does anyone else, how much liquidity is needed and at what costs. The market does. So yes, the fed can pull or push liquidity too quickly and cause further issues, including depression/hyperinflation.

      4. This is correct – and goes back to the point I made earlier. Krugman as well as other economists know full well what the issues are and how to resolve them (end the fed), but we dont pay his salary and publish his books – do we? What economists like him do is put out models that they themselves ca’tn understand to confuse the populus. Would you question someone like this if you did not understand the theory of “exponential blah blah blah”? He is an arrogant fool that thinks he can keep fooling people for ever.

      1. Wyndtunnel


        I agree with you that under the “market” system that we’ve inherited recessions are necessary to clear out malinvestment. But thanks to decades of the Greenspan and Bernanke puts we are faced with the Mother of all negatively entropic self-reinforcing network effects.

        Austerity combined with the inter-bank/CB shell game of creating more debt to paste over the cracks is simply increasing the potential energy to be released when the stinking pile of debt-manure spontaneously combusts. I’m not sure how solid an analogy this is but my understanding of smoldering piles of manure is that they are difficult to undo because exposure to oxygen is what sets them off. I would propose that an unfettered deflationary spiral could very well be the oxygen that blows up the world economy as everyone rushes for the exits. The issuing of government originated “sound” fiat to replace bank-issued “manure debt” fiat seems to me a feasible way of controlling the reaction. Mr. Beard’s transfusion analogy also applies. We COULD just throw our hands up and see where the chips fall or continue to pile on the manure as we (well THEY) are currently doing…But either of these options would (will?) be catastrophic. My inclination would have been to lean towards the former, but, like, five crises ago…

        1. Defiant

          All excellent points Wyntunnel!

          But have to disagree with both options you suggest, letting the government touch money and doing nothing. There are many things to be done, and I hope this is where all these discussions lead in the end.

          Don’t get me wrong, I agree on issuing new sound money (NOT fiat as fiat constitutes fraud) and NOT by the government (God help us NO!!!!). The rich and lobby interest (unions and public employees included) that we are all talking about on these boards will impose their will on the government to their advange and we all already know how that ends. To top it off, look at the Obama/Solyndra for a sneak peak at how good the government is at managing the public’s money and picking winners and losers.

          Also, after all the bubbles we’ve seen (Tech, Stocks, Homes, Bonds) with policies coming from Greenspan, Bernanke, Krugman and so many other “top” economists, do we still believe they know how much currency is needed, what the right interest rate is?

          What about the government’s track record when it comes to lowering the cost of education, medical care, homes? Are we still questioning how incapable these people are? Are we still questioning that it’s all about making promises to gain votes?

          How about letting the market decide what type of money is needed, how much money is needed and at what price (interest)? Doesn’t a free market already reward/promote success and punish failure? Isn’t the market un-bias and MUCH MUCH MUCH bigger than any little TBTF bank, than the Fed, and the government. The role of government should be that of an enforcer of the law, nobody should be treated with special privileges; including the rich, the unions, public employees, etc. We are all equal as stated in the constitution.

          There is no need for the government to erase/pay/blahhh debt (this will only complicate matters – would anyone lend me money if they were told they would not be paid back? Would anyone lend money if they lent $100 dollars and the $100 dollars were returned with money now worth $1 dollar in comparison?)

          Instead, what debt cannot be paid should be simply defaulted on. It will be defaulted on anyway regardless. Whether you don’t pay for it, whether the government pays for it, etc.. This will definately return course to the mean.

          1. F. Beard

            There is no need for the government to erase/pay/blahhh debt (this will only complicate matters – Defiant

            And thus you blythely dismiss the commands in the Bible for debt forgiveness of even honest debts. But worse, you ignore that almost all debt is NOT honest but was lent into existence by a government backed/enforced counterfeiting cartel, the banking system.

          2. Defiant


            I believe that the bible refers to no debt – I don’t recall where it says “forgiveness of debt”. Please point me to the right place in the bible.

            If the market thinks a non-debt, free market currency system is more efficient, than be it. We are both going the same direction, BTW, let the market decide what money to use, how much to use, and the cost (labor) is.

          3. F. Beard

            I don’t recall where it says “forgiveness of debt”. Defiant

            See Deuteronomy 15 and Leviticus 25.

            We are both going the same direction, BTW, let the market decide what money to use, how much to use, … Defiant

            The ONLY way we can have a true free market in private money creation is if government money is inexpensive fiat.

          4. F. Beard

            fiat constitutes fraud, I doubt the bible will support that. Defiant

            Yes, if fiat is required to be accepted for private debts, under normal circumstances. But inexpensive fiat is the ONLY ethical money form for government debts – taxes and fees.

          5. Defiant


            I did find the reference in the bible. Note that I necesarily dont disagree with being allowed to spend for 6 years, and be debt free on the 7th. Unless I mis-understand, Deuteronomy 15 defines what should be done by banks in terms of debt, not what should be done by the debtor.

            See Romans 13:8
            Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.

            God never went back on his contract with us. He gave his holly son so that the world be saved. If god did not renege his contract, who are we??

          6. F. Beard

            If the banks are a counterfeiting cartel, and they are, then how can debt to them be valid? It isn’t.

            But since innocents would be hurt if the banks aren’t repaid then the solution is a ban on further counterfeiting and a universal and equal bailout of the entire population, including non-debtors.

            Get it? Free money for non-debtors which actually is simple compensation for years of stolen purchasing power via negative real interest rates.

          7. Defiant

            The debt is valid because both the debtor and creditor made a conscious decision to sign the contract… Those that made profits during the boom years, including consumers and banks, are responsible. Note that neither consumer nor bank shared an iota of the profit with the population back then. There was no need to “spread the pain” at that stage… Same goes to students who gained their degrees via loans (I’m one of these), etc…

            The pain of the contract should beared by the 2 parties and not an ounce should be placed on the population. Both parties signed a contract and either the loan gets paid back or it gets defaulted on. A bank that made bad loans that are not paid back, should not be bailed out and allowed to default.

            Not only will this stop irresponsible behavior, this will set a precedence for a stronger financial, economic, social and political system.

          8. F. Beard

            The debt is valid because both the debtor and creditor made a conscious decision to sign the contract… Defiant

            Wrong on several counts:

            1) No consideration is provided by the lender.
            2) The contract is impossible in aggregate because bank loans create the principal but not the interest.
            3) Those who don’t borrow from the counterfeiting cartel are priced out of the market by those who do borrow. Thus people are driven into debt by the banks.

          9. Defiant


            1 Please define consideration.
            2 The question about aggregate/etc should be dealt before signing. Again, god did not pull out of his contract with us.
            3 The fact that a consumer is “priced” out is no justification for signing a contract and not fullfill.

            Right is right worng is wrong whether perpetrated by rich, banks, me or you.

          10. amanasleep

            If I may comment on the moral question. Defiant, how can you advocate default and at the same time oppose bailout? Whether government should institute a universal bailout has nothing to do with a creditor or debtor obligation to honor a contract. Consider if I see two men, one a creditor and the other his debtor who has not the means to pay, and labors for the interest. If I choose to pay the debtor’s debt and say to both that they should sin no more, then what is the harm? Further, if I advocate to my countrymen that we do the same for all, and convince the majority, then where is the harm?

          11. F. Beard

            Again, god [sic!] did not pull out of his contract with us. Defiant

            A believer should capitalize Deity, don’t you think?

            But here’s what the Lord requires of us:

            He has told you, O man, what is good;
            And what does the LORD require of you
            But to do justice,
            to love kindness,
            And to walk humbly with your God?
            Micah 6:8 NASB

          12. Defiant


            We are focused on the immediate result right in front of us, but discard the bigger, most obvious, and most important one. RESPONSIBILITY….

            Give a man a fish, give him food for a day, teach him how to fish, give him food for live.

            “Forgiving” the loan does not mean forgiving in the first place. You are merely transferring wealth from one hand to the other. BTW – most likely the money will come from the same tax payers who have been crucified through the last 80 years, NOT the banks, NOT the rich, NOT the government beneficiaries. It won’t come from the banks and the rich who lobbied government for their benefit, and they will also NOT allow a devaluation of “their” wealth. The tax payer will foot the loss whether we believe in unicorns or not.

            Second, getting yourself into the loan required a signature from both, the bank and an individual. Both entities are responsible, NOT the tax payer that will most likely foot the bill, as they’ve been footing the bank bailout, bailout of GM, Sallie and Freddie.

            Let’s say a bailout is still what we end up with (This will never happen), aside from the fact the currency will most likely collapse (you can print currency but cannot create capital/wealth – you’ve not resolved an ounce/iota of the issues that has caused the problem. The bailed out individuals will continue to be irresponsible and spend their way into another issue down the line and the banks will continue to lend to people who cannot pay back (because the gov will bail me out if I get in trouble). Like I said, this is actually a mathematical impossibility (the capital/wealth does NOT exist), hence, this will never ever ever ever happen. What will happen is we will hit a wall and see people like Krugman will point fingers at the logical solutions that were never tried.

            Be honest, do you think if the government bails out people they will suddenly change their spending habits? I think we both the answer.

          13. Defiant


            I think we need to clarify things here. This may make a difference in how you see the following statement:

            He has told you, O man, what is good;
            And what does the LORD require of you
            But to do justice,
            to love kindness,
            And to walk humbly with your God?

            Let’s make it clear that the TAX PAYERS were not the cause of the issue. Feel free to jump in and disagree.

            The issue we are debating is a bad economy and unequal distribution of wealth. So what lead to the bad economy and the unequal distribution of wealth. US, The Government, The Banks, The Central Bank are ALL responsible.

            1) US – we need to first focus on the ourselves, we are the 99%, we are the nation. We vote for representatives sitting in office that make the rules and regulations. We accept that this is the best we can get and there are really no other choice but GOP or Dems. Plus, American idol is on tonight – who cares about economics and politics. No-one really cares who is in office these days. WE ARE RESPONSIBLE.

            2) Our government – (selected by US) make law of the land, they that set and enforce policies and regulations followed by institutions and corporations operating in the land. The government has been complicit in the creation and expansion of institutions like the Fed, Sallie, Freddie, HUD, etc etc to promote industries for the good of the US society…. for votes (did you catch my sarcasm?). For some weird reason any industry they promote ends up increasing 10 fold in price, forcing the consumer to get into debt to afford these services. This makes perfect sense… think about it…. they are taxing workers, (or printing money – same as tax), and re-directing those funds to specific industries by force. Well supply and demand 101 states that if more money chases fewer goods/services prices will go up. Wow that was hard. I guess we still have the option of community colleges? TAX PAYER CRUCIFIED without any benefit at all.

            3) Federal Reserve – manages the currency of the US and decides how much is needed and at what price (%). There are conflict of interests as banks own majority share in the Fed, and the government makes the rules. So the Fed is willing to bail out it’s buddies, while keeping the government happy. Keeping the government happy means lending them money for any program they deem necessary (most likely to make a group of people happy to get their votes). The Fed can create money out of thin air and give it to the banks for free (if needed), but it cannot dictate where the money goes or if it goes anywhere. If people are credit worthy and solvent, banks will lend them the money – and this creates markets dislocations/mal-investments. when banks overextend themselves, the big ones will ask for bailouts. This money is printed (devaluing existing money). TAX PAYER CRUCIFIED without any benefit at all.

            So, TAX PAYERS are crucified by having to pay higher taxes, having their wealth devalued, bailing out banks, bailing out irresponsible debtors.

            Pardon me Beard,
            But the last time I checked, TAX PAYERS are the biggest part of the American society/economy.

            Let’s answer the items you mentioned on your previous post:
            – Who is being just and who is not?
            – Who is loving and who is not?
            – Who has being robbed, is being robbed and will be robbed and who is not?

          14. amanasleep

            “Let’s say a bailout is still what we end up with (This will never happen), aside from the fact the currency will most likely collapse (you can print currency but cannot create capital/wealth”

            Untrue, although you are correct that inflation and currency devaluation result if you have too much demand (too many dollars) chasing too little real wealth/economic output. Alas, the current situation in the USA is that Capital/Wealth sits idle because there is an artificial lack of demand in the economy.

            You have it exactly backwards on the economics. Just from a common sense perspective, millions are out of work, which is idle HUMAN capital. Businesses are cutting production, which is idle PRODUCTION capital, as in factories, transport, energy, etc. That this is so is well known to all and uncontroversial.

            GDP measures actual productive output, even if the asset valuations did not support individuals’ ability to finance that output. The capital and wealth is there–it was simply not in the hands of the consumers producing it.

            You frequently bring up Zimbabwe to compare to 2012 USA economy, which is a common mistake. The reason why Zimbabwe hyperinflation is such a terrible comparison is that Zimbabwe did indeed print money without having real capital to support it. This happens frequently in developing countries with Kleptocratic dictatorships, as they loot the country by encouraging foreign investment which the government appropriates to individual thieves in the government, who then continue to devalue to meet nominal interest payments without increasing the productive capacity of their economy. There are many things wrong with the USA economy, but that particular situation is not one of them.

            On morality, I do not mention moral forgiveness. I think we all can agree that man cannot and should not be in the moral forgiveness game. I only ask whether it is immoral for a majority of citizens in a country to democratically decide to pay off the debts of their countryment if they believe it is in the common good to do so. In this case, no contract is abrogated and the creditors are made whole.

            On the issue of future debtor behavior, we can agree to disagree, but I submit that very few individuals prefer to have debts provided they receive adequate income for a reasonable standard of living. It is precisely this standard of living which has been denied to the vast majority of the population except through increasing indebtedness.

            Finally, as a moralist, you should specify: what exactly is the moral responsibility of the lender? You never say, and always talk only about the irresponsibility of the debtor.

          15. F. Beard

            This money is printed (devaluing existing money). TAX PAYER CRUCIFIED without any benefit at all. Defiant

            Because it is going to the banks, the villains, not to the population, the victims. Justice requires RESTITUTION for theft, don’t you know?

            Instead, you buy the Austrian propaganda that nothing can be done, that the victims must suffer in a deflationary spiral.

            And as I keep pointing out to you but you can’t seem to comprehend, a universal bailout could be done with NO change in the total money supply (reserves + credit) IF further credit creation was banned and IF the bailout was metered to just replace existing credit as it is paid off.

            You have been a useful foil so thanks. I don’t expect you to have learned anything but it should be obvious to others by now that your position is untenable. I won’t spend anymore time with you refuting it.

          16. Defiant


            Either I have it backwards or you do. Let’s see if we can come to an agreement. Yes human and production capital is sitting idle due to lack of demand. Demand should not be “artificial” as you profess – isn’t this what the Fed has been doing the last 40 years (flush liquidity/lower rates)? If you agree that this is what the fed has been doing, than how can this be the solution?

            Correct, the wealth is not in the hands of the consumers. It has been stolen – by the same solution you profess. Cheapen the currency and lower rates. Cheaper prices (wealth) produced by efficiency gains was not shared with consumers by the devaluation of the currency and lower rates. Banks and corps hedged their cash to adjust for inflation (stealing the wealth). Unfortunately, me and you have to eat and have no way of hedging. Again, how can the cause be the solution?

            Although I agree that the situation in the US (solvency issue) is different than Zimbabwe (political event), but printing is not the solution. Printing devalues the existing funds being held by individuals, it does nothing. As stated earlier, it’s like adding 3 gallons of water to an ounce of oil. In the end, you still have an ounce of oil.

            If tax payers are con’ed into believing this is a good and decide this is what they want, let them chose what they want (free markets??). Personally, I think this is a disgrace and the ultimate un-moral thing to do – hopefully you see it this way. How can we steal from the same individuals that have been getting their money devalued, the same individuals that bailed out the banks, the same that are now footing other government spending, etc… I don’t have many words to describe, but I hope you get the point.

            As far as morals, you can clearly see how the tax payer has been paying for irresponsible behavior and for the lack of living standards to a subset of the population. The tax payer has foot bank bailouts, QE1, QE2, QE2, TARP and who knows what else. The moral thing to do is to stop robbing the group not responsible, the tax payer, and let the responsible individual and groups pay.

            Note that increasing taxes, devaluing the currency, erasing debt is the same as stealing from the Tax payer.

            I have pointed out what the lender’s responsibility is. It is to do their due diligence before making a loan, and take responsibility for their actions. If loans are not paid back, than they should be allowed to fail. We don’t need inefficient companies.

            In the end, my friend, whatever little is left of the tax payer will be gone, and unfortunately we will all pay for the consequences.

          17. Defiant


            Your last comment makes perfect sense.

            The government has allowed policies which have allowed citizen’s wealth to be stolen – yet you support the government policies, especially those that involves spending at the expense of the tax payer.

            The banks and rich have stolen the citizen’s wealth – but won’t pay because the same government you support, supports them and will not charge them an iota.

            It’s ok for the Tax payer to make the banks, irresponsible borrowers good. I got it… it all makes sense now.

          18. Defiant


            To answer the question about a universal bailout – again, you propose to open a damn wide open, and expect the water to flow in a controlled manner. One dollar coming it, one dollar coming out. It’s so simple – see… Happy Happy Joy Joy….

            Let’s put the “theory” aside for a minute. Why don’t you tell me what people will do with all the disposable income once their debt is paid off? Tell me how this will be “controlled”.

            Why don’t you tell me what people living on fixed income will do?

          19. F. Beard

            Why don’t you tell me what people will do with all the disposable income once their debt is paid off? Defiant

            That’s none of you business, is it?

            Tell me how this will be “controlled”. Defiant

            Control freak, are you?

            Why don’t you tell me what people living on fixed income will do? Defiant

            You mean with the big chunks of cash they will receive? I suppose much of that new cash will be honestly lent out for honest, that is to say probably higher, interest rates.

            My last word to you.

          20. amanasleep

            “Demand should not be “artificial” as you profess – isn’t this what the Fed has been doing the last 40 years (flush liquidity/lower rates)?”

            It is not the demand that has been artificial. It is the current LACK of demand that is artificial (because of the unnecessary debt fueling LEGITIMATE demand). All of the past demand was natural. This demand should have come from rising wages instead of rising debt levels, but the OVERALL economy had and has sufficient capacity to support ALL of the consumption. So currently, the population has a liquidity problem while the banks have a solvency problem.

            Therefore the solution is to provide the population with liquidity, which will simultaneously unwind the bank positions.

            You need to understand something: You do not understand how inflation works. Doing this WILL NOT CAUSE INFLATION. Providing liquidity to individuals will only cause inflation if there is not sufficient production to keep up with demand. But in 2012 USA there is MORE THAN ENOUGH. If we don’t abolish the FED and the current banking cartel as Beard suggests, we can still use FED tools to moderate any inflation that does occur at the margins. The FED is good at fighting inflation.

            Ultimately, the whole point of this exercise is that taxes will not need to be raised, inflation will not occur. If that were true, I would not be in favor of it.

            So we do not really differ morally, I guess. Except that you believe that we should let an entire nation suffer for the sins of a few wealthy ideologues because “contract law”.

            How biblical.

          21. Defiant


            It is not the demand that has been artificial. All of the past demand was natural. <<- THIS

            This demand should have come from rising wages instead of rising debt levels (is this real or was artificial demand being pulled forward???)… <<-DOES NOT JIVE WITH THIS.

            Either demand is real (from increased wealth/surplus) or it is not (from debt). Which one is it?

            Therefore the solution is to provide the population with liquidity, which will simultaneously unwind the bank positions. <<- Really??? So the government issuing new currency out of thin air will not increase the money supply after all…so money does grow on tress and comes from flying unicorns…

            You do not understand how inflation works.<<- although I agree with you 100%, the last time I checked the definition of inflation, it was an increase in the money supply/credit. Throwing in labor/production into the equation does not change the definition, does it? Would labor satisfy demand and prevent rise in some prices? Perhaps it will… but again, prices are not necesarily a function of deflation/inflation. Nor the Fed, nor congress, nor me, nor you know how much currency is needed. Again, you are attempting to solve the cause of the issue by doing exactly what caused it. Opening the damn with blind fold and hoping that the water flows slowly and in a controlled manner will not help. And yes, paying off loans with new currency created out of thin air is not only inflation, it's fraud.

            Although it's easy to point the finger away from us, the blame should go to more than just the few wealth individuals you refer to, starting with our government and ourselves, our bankers, etc.

            Let the market decide how much liquidity is needed, at what price and let the market decide who fails and who does not fail.

            Note that the act of bailing out individuals is a political event, it has to be done by Congress, not the Fed. This activity is out of the Fed's scope and constitutional abilities. Should congress allow this to happen, yes… I will say it again, a political event is what occured in Zimbabwe. If I had to place a bet, I would say that the government is fully aware of the net result of such an act and will never, ever, ever attempt such a thing irrespective of how bad the economy gets IMHO.

          22. Defiant


            Forgot to mention.

            It’s ironic that what some suggest be done is what got us into this mess, yet we are asking for more of it. Not only that, we think that more of it will fix the issue and prevent suffering.. Again I will state it – isn’t this the definiation of insanity?

            It’s ironic to think that allowing the hands of nature/god manage the market is allowing all to suffer.

            In the end, nature/god will take course whether we are living in fantasy or not. We can chose to accept it now and start the process now or prolong the pain.

            “Insanity is doing the same thing, over and over again, but expecting different results.” A Einstein..

      2. F. Beard

        3. The money is not being lent because of structural issues, there are no credit worthy borrowers. Defiant

        The money is not being lent because the banks are afraid they won’t get it back from an over-indebted economy the banks themselves caused!

        And besides that, NO ONE is credit-worthy since under the present system, credit creation is tantamount to counterfeiting.

    4. Hugh

      Re your point 2, Keynesian solutions won’t work for two reasons. First, in a kleptocracy, stimulus programs will be looted. Second, we do not need just increased aggregate demand but demand targeted to re-industrializing the country and reshaping communities, both in a sustainable way.

  23. Managing Director, Capitalist Collections

    After due consideration, I have come to the conclusion that the best way for Capitalist Collections to relocate the Cobble Hill gang to Manhattan, is not by collecting Defiant’s house, but by charging him by the word for his internet abusage.

    I urge all to consider my new “no new bullsh*t” ethic.

    Keep it in yer i-Phone!

  24. Leverage

    Defiant, so clueless that it hurts!

    The guy does not even know how the current system works, how can you make statements on something you don’t know how functions!

    Waste of time.

  25. Matt

    Sigh… here we go again with another installment of “Krugman Is A Bum” on NC. The central complaint here seems to be that higher inflation will not be very effective and that fiscal policy would be much better.

    So, um, should I bother pointing out that Krugman has been calling for more fiscal policy since before Obama took office? That he criticized ARRA for being to small? That he says deficit-financed spending would be more effective than deficit-financed tax cuts?

    That he has a book coming out later this month, which Amazon describes as saying “a quick, strong recovery is just one step away, if our leaders can find the intellectual clarity and political will to end this depression now”? Hint: he is not talking about monetary policy.

    Look, I know that MMT people have some strong disagreements with Krugman about how the financial system works. But can we save this argument for after the glorious left-wing revolution sweeps across the nation? What’s wrong with calling for more fiscal policy, but also calling for the Fed to do whatever it can? “Modern central bankers are so inflation-averse that they would be unlikely to tolerate it getting to anywhere near the level needed to induce anticipatory spending.” As if fiscal policy is more realistic in the current political climate!

  26. kabosht

    Krugman has been pleading for fiscal stimulus unceasingly, basically since the start of the crisis; knocking him for also asking for a higher inflation target is a little off-base. More importantly though: average household debt in the U.S. is something on the order of $100,000, while average household expenditures are approximately half of that; thus, inflation reduces the value of debt by twice as much as it increases relative expenditure, an overall net gain for debtors, but a loss for creditors– which is why the creditor class is so fiercely opposed to anything that might lead to even modest inflation. As a side note, the argument about inflation increasing the propensity to lend/spend is not about whether this is true for the average household– it’s about the many businesses that are demonstrably sitting on piles of cash; a more inflationary environment would encourage them to make productive use of those dollars, rather than let them lose their value.

    1. F. Beard

      One can have “stimulus” without price inflation if the new money is combined with leverage restrictions on the banks. Ideally, if the banks were forbidden to create anymore “credit” that would leave a huge hole in the money supply as existing credit was paid off with no new credit debt to replace it. That hole could be filled with “stimulus” checks to the entire population to help debtors pay off their loans and to give non-debtors plenty of money to honestly lend.

  27. Mark A. Sadowski

    You wrote at the Money Illusion:

    “Mark, I made no assertions about whether monetary policy can cause inflation.

    My post was on the question of whether inflation would have the beneficial effects Krugman claimed it would have. He offered two familiar classic arguments in favor of a positive answer to that question: (1) inflation helps debtors pay pay their debts faster and (2) inflation causes people to spend their money more rapidly.

    In response to (1) I argued that inflation only helps some people pay their debts more rapidly: namely those whose nominal wages rise significantly along with the increase in the price level. I have claimed that there is a significant class of people for whom that does not happen. For them, the impact of inflation is lower real wages and negligible impact on their debt burden.

    Scott then argued that my argument failed because if the inflation was caused by an increase in aggregate demand (by which I understand him to mean the AD curve moving to the right), then GDP would have increased as well.

    I replied that that had nothing to do with my point, since I was not talking about an aggregate phenomenon, but a phenomenon affecting a particular subclass of people within the aggregate population, and that my point held even if the inflation was caused by an increase in aggregate demand. Another way of putting it is that it is entirely possible that prices and nominal national income could go up, even while a significant portion of the nation does not see an increase in their nominal income. There would be no debt burden benefit for the latter group. I have also argued that this latter group consists of the most vulnerable and most poorly paid workers in our economy, with the least bargaining power.

    In response to Krugman’s point (2), I cited a 2011 paper arguing that that the alleged positive correlation between the rate of inflation and the propensity to spend (something I learned even back when I was in college taking into econ), might not actually exist.

    So can you see that the question of whether the Fed can engineer increases in the rate of inflation, and if so by what means, is not relevant to my argument? I wasn’t talking about whether the Fed could create higher inflation; I was talking about whether higher inflation, however it is caused, would be a good thing.”

    Well, thank you for your belated drect response to my question. It only took you three days to come up with it.

  28. Mark A. Sadowski

    I don’t blame you in particular but there is an unusual confluence of circumstances where I start having massive internet troubles whenever I honestly debate the MMTs. I wish you guys displayed as much democratic spirit as you preach.

    It’s too bad you’re all a bunch of gigantic hypocrites.

Comments are closed.