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Thursday, December 15, 2011

Paul Krugman, "G.O.P. Monetary Madness": "Great Depression, here we come"

In his latest New York Times op-ed entitled "G.O.P. Monetary Madness" (http://www.nytimes.com/2011/12/16/opinion/gop-monetary-madness.html?ref=opinion), Paul Krugman would have us know that expansion of the monetary base in recent years by the Federal Reserve has not resulted in significant inflation and debasement of the dollar, as predicted by Ron Paul and Paul Ryan. (That's a helluva lot of Pauls in one sentence.) Krugman asks, "Who could have predicted that printing so much money would cause so little inflation?" The Great and Powerful One's answer? You guessed it:

"Well, I could. And did."

Krugman concludes his opinion piece by observing:

"Now, it’s still very unlikely that Ron Paul will become president. But, as I said, his economic doctrine has, in effect, become the official G.O.P. line, despite having been proved utterly wrong by events. And what will happen if that doctrine actually ends up being put into action? Great Depression, here we come."

Don't get me wrong: I wouldn't even want to imagine Ron Paul as president. On the other hand, I thought the US was already in something approximating a depression, and as acknowledged by Krugman in his prior op-ed, "Depression and Democracy" (http://www.nytimes.com/2011/12/12/opinion/krugman-depression-and-democracy.html?_r=1&ref=opinion):

"It’s time to start calling the current situation what it is: a depression."

As pointedly observed by Peter Wehner of Commentary in his August 2011 "Contentions" opinion piece entitled "Answering Jonathan Alter's Challenge" (http://www.commentarymagazine.com/2011/08/26/jonathan-alter-challenge/):

"* Under Obama’s stewardship, we have lost 2.2 million jobs (and 900,000 full-time jobs in the last four months alone). He is now on track to have the worst jobs record of any president in the modern era.

* The unemployment rate stands at 9.1 percent v. 7.8 percent the month Obama took office.

* July marked the 30th consecutive month in which the unemployment rate was above the 8 percent level, the highest since the Great Depression.

* Since May 2009 — roughly 14 weeks into the Obama administration — the unemployment rate has been above 10 percent during three months, above 9 percent during 22 months, and above 8 percent during two months.

* Chronic unemployment is worse than during the Great Depression.

* The youth employment rate is at the lowest level since records were first kept in 1948.

* The share of the eligible population holding a job has declined to the lowest level since the early 1980s.

* The housing crisis is worse than in the Great Depression. (Home values are worth roughly one-third less than they were five years ago.)

* The rate of economic growth under Obama has been only slightly higher than the 1930s, the decade of the Great Depression. From the first quarter of 2010 through the first quarter of 2011, we experienced five consecutive quarters of slowing growth. America’s GDP for the second quarter of this year was a sickly 1.0 percent; in the first quarter, it was 0.4 percent.

* Fiscal year 2011 will mark the third straight year with deficits in excess of $1 trillion. Prior to the Obama presidency, we had never experienced a deficit in excess of $1 trillion.

* During the Obama presidency, America has increased its debt by $4 trillion.

. . . .

* America saw its credit rating downgraded for the first time in history under the Obama presidency.

* Consumer confidence has plunged to the lowest level since the Carter presidency.

* The number of people in the U.S. who are in poverty is on track for a record increase on President Obama’s watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty.

* A record number of Americans now rely on the federal government’s food stamps program. More than 44.5 million Americans received Supplemental Nutrition Assistance Program (SNAP) benefits, a 12 percent increase from one year ago."

In many respects, this economic data points to a situation worse than the Great Depression.

True, as Krugman observes, over the past three years "consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent." However, Krugman fails to factor into the equation how much less Americans have to spend, owing to persistent unemployment. By way of comparison, there was deflation during the Great Depression.

Looking ahead with respect to debasement of the dollar, I believe that if Obama oversees several more trillion dollar deficit years, the US currency will indeed lose much of its value. Moreover, if this happens, I, the Gray Wizard of Caesarea, can predict the next great growth industry: wheelbarrows, needed to haul dollar bills to the grocery store to purchase bread.

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