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Sunday, July 6, 2014

Paul Krugman, "Beliefs, Facts and Money": What Krugman Doesn't Tell Us

In his latest New York Times op-ed entitled "Beliefs, Facts and Money" (http://www.nytimes.com/2014/07/07/opinion/paul-krugman-conservative-delusions-about-inflation.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=0), Paul Krugman would again have us know that deficit spending, which caused US national debt to rise from $10.6 trillion when Obama took office in January 2009 to its current $17.6 trillion, has not been accompanied by inflation. Krugman writes (my emphasis in red):

"Above all, there were many dire warnings about the evils of 'printing money.' For example, in May 2009 an editorial in The Wall Street Journal warned that both interest rates and inflation were set to surge 'now that Congress and the Federal Reserve have flooded the world with dollars.' In 2010 a virtual Who’s Who of conservative economists and pundits sent an open letter to Ben Bernanke warning that his policies risked 'currency debasement and inflation.' Prominent politicians like Representative Paul Ryan joined the chorus.

Reality, however, declined to cooperate. Although the Fed continued on its expansionary course — its balance sheet has grown to more than $4 trillion, up fivefold since the start of the crisis — inflation stayed low. For the most part, the funds the Fed injected into the economy simply piled up either in bank reserves or in cash holdings by individuals — which was exactly what economists on the other side of the divide had predicted would happen.

Needless to say, it’s not the first time a politically appealing economic doctrine has been proved wrong by events. So those who got it wrong went back to the drawing board, right? Hahahahaha."

Whoa! Yes, there has been a horrific recession limiting demand for goods and services, and inflation has remained low, but what about the other side of the coin? What about currency debasement?

Over the past decade, the US dollar has lost some 20 percent of its value against the Canadian dollar, some 12 percent of its value against the euro, some 29 percent of its value against the Swiss franc, some 6 percent of its value against the Japanese yen, some 24 percent of its value against the new Israeli shekel, and some 25 percent of its value against the Chinese yuan.

What happens when the Chinese decide that their loans to the US are losing too much of their value owing to currency debasement and demand the return of their $1.3 trillion from the US government? Believe me, you don't want to know.

Hahahahaha indeed.

2 comments:

  1. Maybe the Chinese will take an I.O.U.??? LOL.

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  2. I don't know ...
    I don't know how the world can survive two and half more years of Obama. We are collapsing, descending into chaos. And I didn't know that 7 years ago. Sure. OK, I am not typical - in many ways.
    Can some mature individuals come to Washington and try to save the world?
    This striking nice poses by empty suits, giving nice speeches by demagogues, offering nice smiles by narcissists and applauding of empty, demagogic narcissists by idiotic audience doesn't work.

    ReplyDelete