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Who President Trump ultimately picks as the next Federal Reserve Chairman doesn’t really matter. Unless he goes really far afield to someone totally unexpected, whoever that person will be will be largely more of the same. It won’t be a categorical change, a different philosophical direction that is badly needed.

Still, politically, it does matter to some significant degree. It’s just that the political division isn’t the usual R vs. D, left vs. right. That’s how many are making it out to be, and in doing so exposing what’s really going on.

As usual, the perfect example for these divisions is provided by Paul Krugman. The Nobel Prize Winner ceased being an economist a long time ago, and has become largely a partisan carnival barker. He opines about economic issues, but framed always from that perspective.

To the very idea of a next Fed Chair beyond Yellen, he wrote a few weeks ago, “we’re living in the age of Trump, which means that we should actually expect the worst.” Dr. Krugman wants more of the same, and Candidate Trump campaigned directly against that. As such, there is the non-trivial chance that President Trump lives up to that promise.

Again, it sounds like a left vs. right issue, but it isn’t. The political winds are changing, and the parties themselves are being realigned in different directions (which is not something new; there have been several re-alignments throughout American history even though the two major parties have been entrenched since the 1850’s when Republicans first appeared). Who the next Fed Chair is could tell us something about how far along we are in this evolution.

What Krugman wants, meaning, it is safe to assume, what all those like him want, is simple: success. He believes that the central bank has given us exactly that, therefore it is stupid to upset what works.

…click on the above link to read the rest of the article…

Krugman and the “Heroic” Fed

October 19, 2017

Krugman and the “Heroic” Fed

Once an avid reader of Paul Krugman’s New York Times twice-weekly columns, I admit to rarely even glancing at his work now, since I know that anything he writes is going to have the theme of “Trump evil, Democrats good” each time, and it doesn’t take long to get one’s fill of that, even if one disagrees with Donald Trump’s policies or cringes at some of his public statements. The real problem, however, is that Krugman also manages to endorse unsound and inflationary economic policies as a “solution” to what he calls “Trumpism.”

If one reads Krugman to see what “vulgar” Keynesian fallacies he is promoting, the man rarely disappoints, and a recent column in which he attacks what he believes will be Trump’s future choice to head the Federal Reserve System only burnishes Krugman’s Keynesian credentials. After claiming that Trump has been like a “Category 5 hurricane sweeping through the U.S. government, leaving devastation in his wake,” Krugman then worries if the Fed will suffer the same fate. One only could hope….

Before looking at Krugman’s worshipful commentary on the current Fed leadership, a brief point is in order regarding the rest of official Washington that Trump allegedly has devastated. People like Krugman believe that Washington and its gaggle of Alphabet-Soup agencies regulating nearly every aspect of individual lives is the very source of social stability and economic prosperity in this country – provided there are little or no restraints on what government agents can do. As Krugman and his fellow progressives see it, we need more, not less, bureaucratic control of our lives, and especially control by people of progressive bent with “elite” academic credentials, since they are smarter than the rest of us, so they should be able to tell us what to do.

…click on the above link to read the rest of the article…

What Is the Liquidity Trap?

August 28, 2017

What Is the Liquidity Trap?

Some economists such as a Nobel Laureate Paul Krugman are of the view that if the US were to fall into liquidity trap the US central bank should aggressively pump money and aggressively lower interest rates in order to lift the rate of inflation. This Krugman holds will pull the economy from the liquidity trap and will set the platform for an economic prosperity. In his New York Times article of January 11, 2012, he wrote,

If nothing else, we’ve learned that the liquidity trap is neither a figment of our imaginations nor something that only happens in Japan; it’s a very real threat, and if and when it ends we should nonetheless be guarding against its return — which means that there’s a very strong case both for a higher inflation target, and for aggressive policy …(of the central bank).

But does it make sense that by means of more inflation the US economy could be pulled out of the liquidity trap?

The Origin of the Liquidity-Trap Concept

In the popular framework of thinking that originates from the writings of John Maynard Keynes, economic activity presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.

Recessions, according to Keynes, are a response to the fact that consumers — for some psychological reasons — have decided to cut down on their expenditure and raise their savings.

For instance, if for some reason people have become less confident about the future, they will cut back on their outlays and hoard more money. Therefore, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

…click on the above link to read the rest of the article…

Fumbling Towards Collapse

February 20, 2017

Fumbling Towards Collapse

In all the smoke and fog emitted by Trump and his adversaries, it must be hard to make out the actual issues dogging this society, and even when you can, to find a coherent position on them. This was nicely illustrated in Paul Krugman’s fatuous column in Monday’s New York Times, “On Economic Arrogance” — the title describes Krugman’s own attitude to a T.

In it, Krugman attempts to account for the no-growth economy by marshaling the stock-in-trade legerdemain of academic economics: productivity, demographics, and labor metrics. Krugman actually knows zip about what afflicts us in the present disposition of things, namely the falling energy-return-on-energy-investment in the oil industry, which is approaching the point where the immense activity of getting oil out of the ground won’t be worth the cost and trouble of doing it. And since most of the things we do and produce in this economy are based on cheap oil — with no reality-based prospect of replacing it with so-called “renewables” or as yet undiscovered energy rescue remedies — we can’t generate enough wealth to maintain anything close to our assumed standard of living. We can’t even generate enough wealth to pay the interest on the debt we’ve racked up in order to hide our growing energy predicament. And that, in a nutshell, is what will blow up the financial system. And when that department of the economy goes, the rest will follow.

So, the real issue hidden in plain sight is how America — indeed all the so-called “developed” nations — are going to navigate to a stepped-down mode of living, without slip-sliding all the way into a dark age, or something worse. By the way, the Ole Maestro, Alan Greenspan, also chimed in on the “productivity” question last week to equally specious effect in this Business Insider article.

…click on the above link to read the rest of the article…

The Coming Of Depression Economics

January 29, 2017

The Coming Of Depression Economics

Like it or not, this is where we have been all along and a great many people are just now catching up. No matter what Janet Yellen says about the economy, she is talking out the side of her mouth. Internally, the recovery is gone, and it is never coming back. Externally, we have sub-5% unemployment so we all should be so happy, especially with, in her view, stable prices.

To their credit, many prominent economists aren’t so enthusiastic about those prospects. Among them are Larry Summers, Paul Krugman, and Brad DeLong, all who recognize that “something” just isn’t right and therefore “something” else should be done about it. Thus, the real economic debate over the coming years (unfortunately) will take shape around those two facets. Having wasted nearly a decade on purely central bank solutions that were never going to work, the real discoveries can now possibly take place.

The problem is as I wrote yesterday, where in a rush to do anything and everything “different” the Trump administration might actually spoil the process. De-regulation and income tax cuts, as well as the repeal of Obamacare, are all very good things that sorely need to be addressed; but they didn’t cause this depression and thus won’t get us out of it. And you can bet that none of Summers, Krugman, or DeLong will be in favor of those options, so if they all fail to restore economic growth, as I believe they will if left in isolation, then that will severely diminish those ideas for perhaps a generation or more. That would be a fatal mistake, especially since for the first time in many generations people outside of Economics are receptive to “new” ideas (that are only new because they have been out of practice and actively discouraged for so long).

…click on the above link to read the rest of the article…

What Comes Next——Krugman’s Fiscal Equivalent Of War

May 2, 2016

What Comes Next——Krugman’s Fiscal Equivalent Of War

Somebody must have reinstated Paul Krugman’s passport. He was recently back in Japan to meet with the world’s leading economy-wrecking triumvirate —-Prime Minister Abe, BOJ Governor Kuroda and Finance Minister Taro Aso—–to dispense some desperately needed advice.

Japan is on the verge of a second recession during Abe’s tenure despite his plunge into full frontal Keynesian stimulus. But since March 2013 when Kuroda cranked up the BOJ’s printing press to white heat, two main things have happened. The BOJ’s already bloated balance sheet has exploded by 2X and the flat-lining Japanese economy has continued undulating to nowhere.

Japan Central Bank Balance Sheet

Japan GDP Constant Prices

Professor Krugman was naturally at the ready with a solution. He recommended his hosts take a lesson from the America’s World War II playbook and declare “the fiscal equivalent of war”.

Well, the US actually didn’t borrow its way out of the Great Depression; it saved its way out. As I documented in The Great Deformation, total public and private debt at the end of 1938 amounted to 210% of GDP, but by the end of 1945 it had dropped to 190% of GDP.

That’s right. The hoary Keynesian mantra about the fiscal stick save of WWII is a complete myth.

What happened is that the US economy was entirely regimented for war mobilization.There were few consumer goods on the shelves and business had no need to borrow for working capital or equipment because financing was supplied by Uncle Sam. So private sector savings soared to nearly 20% of GDP and combined household and business debt dropped from 150% of GDP on the eve of war to 60% by the end.

…click on the above link to read the rest of the article…

Why All Central Planning Is Doomed to Fail

April 15, 2016

Why All Central Planning Is Doomed to Fail

Positivist Delusions

[ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives]

We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works.

Simpletons A bunch of famous people with a simpleton view of how the world works…who not only seriously think the economy can and should be “planned”, but arrogantly believe they are the ones who should do it. It’s a bit like the crazy guy who doesn’t know he’s crazy.

They believe they can manipulate the future and make it better. Not just for themselves… but also for everyone else. Where did such a silly idea come from?

After the Renaissance, Aristotelian logic came to dominate Western thought. It was essentially a forerunner of positivism – which is supposedly based on objective conditions and scientific reasoning.

“Give me the facts,” says the positivist, confidently.

“Let me apply my rational brain to them. I will come up with a solution!”

Beyond the Herald’s Cry

This is fine, if you are building the Eiffel Tower or organizing the next church supper. But positivism falls apart when it is applied to schemes that go beyond the reach of the “herald’s cry.”

That’s what Aristotle said: Only a small community would work. Because only in a small community would all the people share more or less the same information and interests.

…click on the above link to read the rest of the article…

A Quarter Century Of Monetary Voodoo

April 4, 2016

A Quarter Century Of Monetary Voodoo

A Witless Tool of the Deep State?

Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?

A coo-coo for the stock market…

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

…click on the above link to read the rest of the article…

Benn Steil: Why Is Paul Krugman Still Calling For Fiscal Stimulus?

April 4, 2016

BENN STEIL: WHY IS PAUL KRUGMAN STILL CALLING FOR FISCAL STIMULUS?

Nobel economist and New York Times columnist Paul Krugman is fond of mocking his critics for being ideologues rather than economists. In contrast, Krugman’s own policy prescriptions, he assures us, are based wholly on soundeconomic science.

Case in point is the theory of liquidity traps, which goes back to Keynes. An economy is said to be in a liquidity trap when the central bank is powerless to stimulate economic growth because the public demand for liquidity has become limitless. This could happen when interest rates have been driven down to zero, a situation in which people may prefer holding cash to consuming or investing.

Krugman has argued that the rules of the policy game are different in a liquidity trap. In normal times, when short-term interest rates are positive, governments can and should rely on monetary policy – cutting rates – to stimulate economic activity if output is running below capacity. There is no need for extra government spending to substitute for deficient private demand – what we call fiscal stimulus. The private sector can do the job on its own with an appropriate level of interest rates. But if rates are at zero, and need to go lower, the central bank is out of ammunition. The government must step in with higher spending, even if it means running large budget deficits.

While in no way disproving the theory, recent years have shown, however, to Krugman’s admitted surprise, that the so-called zero lower bound on rates is not, in fact, a lower bound. Central banks in Europe and Japan have experimented with negative rates and have found that they have thus far not driven banks to hoard cash in vaults (as a means to avoid paying the central bank to hold their balances). So the lower bound is actually somewhere below zero.

…click on the above link to read the rest of the article…

Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves

March 26, 2016

Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves

Much like BoJ governor Haruhiko Kuroda, Paul Krugman thinks that the key for Japan when it comes to overcoming decades of deflation is a positive outlook.

“Japan needs to reach a point where everyone believes that it has pulled out of deflation. And then if that can be believed, then it may be able to stay out of trouble thereafter,” he told an audience in Tokyo last September.

That rather ridiculous pronouncement is reminiscent of something Kuroda said last summer: “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.”

In other words, Krugman and Kuroda believe that Japan can wish its way out of deflation. Krugman’s comments in Tokyo came around 10 months after he visited Japan in 2014. On that trip, he’s said to have helped convince PM Shinzo Abe to delay a planned sales tax hike. “That nailed Abe’s decision — Krugman was Krugman, he was so powerful,” Japanese economist Etsuro Honda said, recounting a meeting between the economist and the premier.

Well, 16 months has passed since that fateful visit and virtually nothing has changed in Japan. In fact, the Japanese have since taken a further plunge down the Keynesian rabbit hole by taking interest rates negative and not only is inflation still languishing at essentially zero, stocks are some 20% off their highs and this month the yen actually hit its highest levels since Kuroda announced the second round of QE two Octobers ago.

…click on the above link to read the rest of the article…

Japan’s Finance Minister Accidentally Reveals How It All Ends: “War”

March 26, 2016

Japan’s Finance Minister Accidentally Reveals How It All Ends: “War”

While this all started with a currency “war,” it seems – according to a stunningly candid transcript of Japan’s finance minister’s conversation with none other than Paul Krugman – that the real endgame here is actual war. Aso remarked that “a similar [deflationary mindset] had occurred in the US in the 1930s. What solved the question? War! Because World War II had occurred during the 1940s and that became the solution for the United States. [We] have to switch [the Japanese] mindset… we are looking for the trigger.“

Japanese Prime Minister Shinzo Abe has been the most hawkishly militaristic PM of a generation, shifting from the passive society to an aggressor, beginning around 2013. This has only been emboldened by rising nationalism and escalatuing tensions in the South China Sea.

We note this by way of background as just-released transcripts of a conversation between Japanese finance minister Aso and Uber-Keynesian Paul Krugman reveal perhaps the reality that Japan faces as its economic and social structure collapses…

(Minister of Finance Aso)

During the 1930’s, I remember that in the United States likewise there was a situation of deflation. And the New Deal policies have been introduced by then President Roosevelt. As a result, it worked out very nicely, but the largest issue associated with it is that for a long period of time entrepreneurs and managers of companies did not go to make a capital investment by receiving the loan. It had continued up until the late 1930’s and that is the situation occurring in Japan too. The record high earnings have been generated by the Japanese companies but they would not spend in the capital investment.

…click on the above link to read the rest of the article…

America 2016: What Happens When a Nation Gives Too Much Political Power to the Super Rich

January 3, 2016

America 2016: What Happens When a Nation Gives Too Much Political Power to the Super Rich

Sheldon Adelson. (East Coast Gambler / CC BY 2.0)

As the high-powered shenanigans of Las Vegas casino mogul and GOP bankroller Sheldon Adelson show, “Oligarchy, rule by the few, also tends to become rule by the monstrously self-centered,” Paul Krugman writes in The New York Times.

Krugman continues in a column published Friday:

[…] it’s obvious […] that extreme wealth can do extreme spiritual damage. Take someone whose personality might have been merely disagreeable under normal circumstances, and give him the kind of wealth that lets him surround himself with sycophants and usually get whatever he wants. It’s not hard to see how he could become almost pathologically self-regarding and unconcerned with others. […]

Modern America is a society in which a growing share of income and wealth is concentrated in the hands of a small number of people, and these people have huge political influence — in the early stages of the 2016 presidential campaign, around half the contributions came from fewer than 200 wealthy families. The usual concern about this march toward oligarchy is that the interests and policy preferences of the very rich are quite different from those of the population at large, and that is surely the biggest problem. […]

The most obvious illustration of the point I’ve been making is the man now leading the Republican field. Donald Trump would probably have been a blowhard and a bully whatever his social station. But his billions have insulated him from the external checks that limit most people’s ability to act out their narcissistic tendencies; nobody has ever been in a position to tell him, “You’re fired!” And the result is the face you keep seeing on your TV. […]

…click on the above link to read the rest of the article…

Let’s define Degrowth before we dismiss it

December 29, 2015

Let’s define Degrowth before we dismiss it

The reluctance of degrowth-critics to define growth makes for poor debate

Diverse commentators such as Samuel Farber, Paul Krugman, and Leigh Phillips are arguing that economic growth is necessary to protect existing, and future well-being.

Diverse leftist commentators such as Samuel Farber, Paul Krugman, and Leigh Phillips are arguing that economic growth is necessary to protect existing and future well-being. But rarely do they define what they mean by economic growth.

Recently there’s been a wave of arguments defending economic growth from a leftist perspective. People are increasingly reacting to the rise of ‘degrowth’: a diverse movement calling for, among other things, scaling back the total material and energy use of the global economy.

One particularly vigorous example is the work of Leigh Phillips, where he accuses degrowthers—who he claims have become “hegemonic” (file under: things I wish were true but aren’t)—of undermining classic leftist pursuits such as progress, well-being, and strengthening of social services. Similar arguments could be seen in a recent article that appeared in Jacobin Magazine, in which growth was posited as necessary for progress. And Keynesian economists like Paul Krugman have come out against degrowth, claiming that economic growth is actually necessary to address climate change, and lumping degrowthers together with the Koch Brothers, as they both seem to seek to dismantle the state.

When two sides of an argument have a totally different definition of the concept that’s being debated, and if one side even refuses to define it, constructive discussions tend to turn into uncompromising squabbles.

Many of their points have been valid and necessary—serving to complicate the simplistic ‘are-you-for-capitalism-or-a-Luddite?’ narrative. Preaching the benefits of technology and criticizing the current economic system are not mutually exclusive. But there are some recurring problems with these arguments that I want to highlight.

…click on the above link to read the rest of the article…

Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households

November 25, 2015

Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households

Late last month, Sweden tripled down on QE, as the Riksbank announced it would expand its asset purchases by SEK65 billion. Or, visually:

The recent history of Swedish monetary policy is viewed by some as a cautionary tale about what can happen when a central bank attempts to normalize policy too “early.” As a reminder, the Riskbank began raising rates in 2010. Reminiscing about the bank’s decision four years later, Paul Krugman blew a gasket on the way to accusing Sweden of being a nefarious lot of job hating heretics hell bent on perpetuating global inequality by enriching creditors at the expense of impoverished debtors.

Of course Krugman needn’t have been so hard on the Riksbank. After all, they reversed course a little over a year later and since then, it’s been nothing but easing as the repo rate fell 35 bps into negative territory.

The problem, as we’ve documented quite extensively, is that Sweden’s adventures in NIRP-dom have done little to boost inflation (to be fair, unemployment has fallen).

For the Paul Krugmans of the world, that’s evidence of a hangover from the series of hikes the Riksbank embarked on beginning in 2010. For anyone who is sane, it’s evidence that, i) unconventional monetary policy is bumping up against the law of diminishing returns , and ii) when everyone is easing, no one gets the benefits.

But while NIRP may not be doing much for inflation, it sure has been effective at creating a rather scary looking housing bubble. Have a look:

We discussed this at length in “Sweden Goes Full Krugman, Gets Massive Housing Bubble.” Here’s what the Riskbank had to say about this after its September meeting:

“Low interest rates contribute to the trends of rising house prices and increasing indebtedness in the Swedish household sector continuing.

…click on the above link to read the rest of the article…

The Krugman Con

October 29, 2015

The Krugman Con

Gold’s biggest enemy is a brilliant Nobel Prize winning economist, university professor and columnist for the New York Times. Sadly, he is also a con man.

Last week Paul Krugman wrote a column for the New York Times in which he called Republican Paul Ryan, a “con man.” The Republican chairman of the House Ways and Means Committee’s sins, Krugman, a Nobel prize winning economist and a professor at City University of New York, argues, stem from a lack of detail in his budget plans, regarding proposed spending cuts and closed tax loopholes.

Calling a politician a con man is a bit like telling a pig farmer that he stinks. It’s practically part of the job description.

The claim is particularly rich, coming from Krugman, who in recent years has emerged as the de facto leader of a group of mainstream economists, whose advocacy of near unlimited government spending, borrowing and, most recently, money printing, will go down as one of history’s greatest cons.

Understanding how, what I call the “Krugman Con,” has been unfolding is crucial for precious metals advocates, because one of its core elements was the attempted elimination of the vital role played by gold. Indeed, the gold’s recent resurgence on the world stage is an indication that the con, is nearing its closing stages

Tax and spend. Borrow and spend. Print and spend.

Krugman’s sins, which relate to his advocacy of distortions of policies suggested by John Maynard Keynes, are arguably far worse than Ryan’s. As a university professor, Krugman has an obligation to be bound by a modicum of intellectual and academic rigor, rigor which is sadly absent in the advice he gives.

In his landmark work “The General Theory of Employment, Interest and Money,” Keynes recommended that governments, through their spending, ought to play a stabilizing role in the economy.

…click on the above link to read the rest of the article…

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