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.

Paul Krugman, "Et Tu, Bernanke?": Hey, Doesn't Someone Else Deserve the Blame?

Yesterday, I was asked to attend a management meeting of Nano Retina, a small, non-public Israeli start-up company (see: http://jgcaesarea.blogspot.co.il/2010/12/nano-retinas-bionic-retina-seeks-to.html), which is creating a tiny implant that will restore vision to persons blinded by retinal disease, e.g., age-related macular degeneration and retinitis pigmentosa, in a 30-minute minimally invasive procedure. Viewing a simulation of what patients will be able to see following implantation of the device and listening to the subsequent discussion, I estimated the incredible cumulative IQ of those seated around the table and calculated by how much the average had been reduced by my arrival in the room. Although I could not understand much of the talk concerning the electronics and miniaturization, I was relieved to know what humans continue to strive to achieve, notwithstanding the readiness of others to spend hundreds of dollars on zombie movies (see: http://jgcaesarea.blogspot.co.il/2013/06/maureen-dowd-zombie-scare-with-zombie.html).

But all is far from well in the world.

In his latest New York Times op-ed entitled "Et Tu, Bernanke?" (http://www.nytimes.com/2013/06/24/opinion/krugman-et-tu-bernanke.html?_r=0), Paul Krugman complains that the US Federal Reserve is hinting that it is abandoning its policy of aggressive monetary stimulus. This has caused the benchmark interest rate on 10-year US government bonds to rise from 1.7 percent to 2.4 percent over the past two months and has also engendered a precipitous decline in the stock markets (see: http://jgcaesarea.blogspot.co.il/2013/06/william-cohan-at-long-last-stocks-get.html).  Krugman writes:

"Lately, Fed officials have been issuing increasingly strong hints that rather than doing more, they want to do less, that they are eager to start 'tapering,' returning to normal monetary policy.

. . . .

The first thing you need to understand is how far we remain from full employment four years after the official end of the 2007-9 recession. It’s true that measured unemployment is down — but that mainly reflects a decline in the number of people actively seeking jobs, rather than an increase in job availability. Look, for example, at the fraction of adults in their prime working years (25 to 54) who have jobs; that ratio fell from 80 to 75 percent in the recession, and has since recovered only to 76 percent.

Given this grim reality — plus very low inflation — you have to wonder why the Fed is talking at all about reducing its efforts on the economy’s behalf.

Still, it’s just talk, right? Well, yes — but what the Fed says often matters as much as or more than what it does. This is inherent in the relationship between what the Fed more or less directly controls, namely short-term interest rates, and longer-term rates, which reflect expected as well as current short-term rates. Even if the Fed leaves short rates unchanged for now, statements that convince investors that these rates will be going up sooner rather than later will cause long rates to rise. And because long rates are what mainly matter for private spending, this will weaken growth and employment."

Yes, I agree with Krugman: unemployment remains disastrously high, although I question to what extent the purchase by the Fed of billions of dollars of Treasury and mortgage-backed securities each month has improved the American economy. Yes, funds have been driven to the stock market, but where is resultant job creation?

But just a moment: Where is there even a mention of Obama in Krugman's op-ed? Does our incredible shrinking president (see: http://jgcaesarea.blogspot.co.il/2013/06/the-incredible-shrinking-president-he.html) have no responsibility for the economy? Perhaps not. Recall the recent words of Ben Rhodes regarding the cost of the president's upcoming trip to Tanzania:

"We don't have the exact figure on costs — frankly we don't own or control those numbers."

Or in other words, "Hope," "Change" and "Forward" with no control of the numbers.

Yeah, right.

Paul Krugman, "Bernanke, Blower of Bubbles?": Is the Stock Market Due for a Major Correction?

Is the stock market due for a major correction?

In his latest New York Times op-ed entitled "Bernanke, Blower of Bubbles?" (http://www.nytimes.com/2013/05/10/opinion/krugman-bernanke-blower-of-bubbles.html), Paul Krugman writes:

"O.K., what about stocks? Major stock indexes are now higher than they were at the end of the 1990s, which can sound ominous. It sounds a lot less ominous, however, when you learn that corporate profits — which are, after all, what stocks are shares in — are more than two-and-a-half times higher than they were when the 1990s bubble burst. Also, with bond yields so low, you would expect investors to move into stocks, driving their prices higher.

All in all, the case for significant bubbles in stocks or, especially, bonds is weak. And that conclusion matters for policy as well as investment."

Krugman makes the connection between interest rates and bond prices:

"Well, the interest rate on long-term bonds depends mainly on the expected path of short-term interest rates, which are controlled by the Federal Reserve. You don’t want to buy a 10-year bond at less than 2 percent, the current going rate, if you believe that the Fed will be raising short-term rates to 4 percent or 5 percent in the not-too-distant future.

But why, exactly, should you believe any such thing? The Fed normally cuts rates when unemployment is high and inflation is low — which is the situation today. True, it can’t cut rates any further because they’re already near zero and can’t go lower. (Otherwise investors would just sit on cash.) But it’s hard to see why the Fed should raise rates until unemployment falls a lot and/or inflation surges, and there’s no hint in the data that anything like that is going to happen for years to come."

Surprisingly, however, Krugman does not make the connection in his opinion piece between interest rates and stock prices.

Stocks can remain high as long as there are no viable alternatives allowing persons to obtain a reasonably secure rate of return on their investments, i.e. as long as interest rates remain low.

Will there be any change in interest rates at any time soon? Here I agree with Krugman: Probably not. We're still in the midst of what Krugman terms "the greatest economic crisis since the 1930s — a crisis from which we have yet to emerge."

However, should there ever be a hint that interest rates are about to be raised, beware! It will not be pretty.

Me? I don't invest in stock market indices, but rather in companies offering disruptive innovation and managed by people I trust, like and admire.

C'est tout.

Paul Krugman, "Not Enough Inflation": But First There Must Be Demand

In his latest New York Times op-ed entitled "Not Enough Inflation" (http://www.nytimes.com/2012/04/06/opinion/krugman-not-enough-inflation.html?_r=0), Paul Krugman claims that higher inflation "would almost surely help the economy," but that Fed officials "are feeling intimidated." The benefits of inflation? Krugman writes:

"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 am not critical of Federal Reserve chairman Ben Bernanke, and I also don't see anything wrong with a little - emphasis on "little" - inflation, which reflects buoyant economic demand.

But given where interest rates currently stand, I question what tools can still be used by the Federal Reserve to engineer such demand and resultant inflation.

Inflation would reduce the real value of debt? Sure, but would banks respond passively to that threat and not raise interest rates? What effect would this have on borrowing? And what effect would this then have on stock market prices, whose decline would erode wealth and economic confidence?

Moderate inflation would make inactive cash less attractive and induce investment? Perhaps, but investment in what? Investment in gold or real estate would not in and of itself alleviate unemployment. Are corporations in need to new manufacturing facilities or equipment, or has manufacturing gone the way of the dodo bird in the US? Is new office space lacking? Not that I can see.

Bottom line, as Krugman surely knows, there are only paradoxes and no simple answers in our brave new world.

Paul Krugman, "Ben Bernanke, Hippie": No Mention of the Bob Woodward Scandal

Read Paul Krugman's latest New York Times op-ed entitled "Ben Bernanke, Hippie" (http://www.nytimes.com/2013/03/01/opinion/krugman-ben-bernanke-hippie.html?_r=0), which he concludes by observing:

"And an end to deficit obsession can’t come a moment too soon. Right now Washington is focused on the idiocy of the sequester, but this is only the latest episode in an unprecedented run of declines in public employment and government purchases that have crippled our economy’s recovery. A misguided elite consensus has led us into an economic quagmire, and it’s time for us to get out."

Now close your eyes, and tell me how many times does our Nobel prize winner mention President Obama, the originator of the sequester, in his opinion piece. Twice? Three times? Five times?

Answer . . . a drum roll please: Not once.

Krugman does comment on the foolishness of the second Iraq war by observing that those who "pointed out that the risks and likely costs of war were huge . . . were dismissed as ignorant and irresponsible."

Well, I opposed that war, because I believed that it would destroy the power equilibrium between Iraq and Iran. I have also opposed America's prolonged ground involvement in Afghanistan, which was foolishly escalated by Obama and is costing the US $6 billion per month, but there is no mention by Krugman of that boondoggle.

The bulk of Krugman's opinion piece is devoted to his obsessive opposition to "austerity." However, there is no attempt by Krugman to distinguish between austerity and foolhardy federal spending.

As noted by Charles Krauthammer today in a Washington Post opinion piece entitled "Hail Armageddon" (http://www.washingtonpost.com/opinions/charles-krauthammer-hail-armageddon/2013/02/28/ca8a32a6-81da-11e2-b99e-6baf4ebe42df_story.html):

"A 2011 Government Accountability Office report gave a sampling of the vastness of what could be cut, consolidated and rationalized in Washington: 44 overlapping job training programs, 18 for nutrition assistance, 82 (!) on teacher quality, 56 dealing with financial literacy, more than 20 for homelessness, etc. Total annual cost: $100 billion-$200 billion, about two to five times the entire domestic sequester."

But Krauthammer is nefarious neocon, and there is nothing to be learned from him.

What else isn't being mentioned by Krugman? There's also the small matter of how the Imperial Second Term Obama Administration is seeking to silence Bob Woodward for daring to remind Americans that the sequester was Obama's dumb idea. As stated by Woodward during an interview by Sean Hannity (I know, another neocon whose show you should never be caught watching) on Thursday night (see: http://freebeacon.com/woodward-discusses-sequester-coverage-w-h-doesnt-want-to-be-crossed/):

Hannity: "Why should it matter if the president suggested the sequestration, and then the president denied that he requested the sequestration, and the president had a deal that he wasn't going to ask for tax increases, and then later does and says that's not true, and they attack you as, well, being willfully wrong? Why should this matter? I mean, don't we deserve our government to be honest with us?

Woodward: "Exactly. And I'm almost 70-years-old, I hate to acknowledge. I've done this for four decades. I will keep doing it in some form. But the White House saying you're doing these things when you've worked months on it and you have the documents, and Jay Carney actually acknowledges paternity for the sequester from the White House. The problem is there are all kinds of reporters who are much less experienced, who are younger, and if they are going to get roughed up in this way. And I am flooded with e-mails from people in the press saying this is exactly the way the White House works. They are trying to control, and they don't want to be challenged or crossed."

Well, Bob Woodward is not a neocon, and although his credibility and motivation are now being questioned by others in the media, doesn't he deserve a minute of our attention, particularly if he is warning that the Obama administration is trying to control America's news media?

Query: Is it even possible that Obama is trying to "control" the news media? Absolutely, and we have the answer from none other than former White House Communications Director Anita Dunn. Listen to Dunn lecture on Obama’s media tactics during the 2008 election (http://www.youtube.com/watch?v=NlGNhAnwp_Y):

"One of the reasons we did so many of the David Plouffe videos was not just for our supporters, but also because it was a way for us to get our message out without having to actually talk to reporters. We just put that out there and made them write what Plouffe had said as opposed to Plouffe doing an interview with a reporter. So it was very much we controlled it as opposed to the press controlled it. . . . very rarely did we communicate through the press anything that we didn’t absolutely control."

Obama is seeking "control" over the media? Actually, as acknowledged by Dunn, he has been seeking "absolute control."

Yes, it is frightening, and it's pitiful to see that Krugman, an economist and also a journalist, doesn't have the backbone to relate to the Woodward scandal.

The Economy: Obama Also Leading from Behind

The Federal Reserve has revised downward its expectations regarding joblessness and expects that unemployment will only decline to some 8.6 percent by the end of 2012 from its current 9.1 percent. This is not happy news for Obama, who faces reelection next year. Obama, who also leads from behind regarding the economy, must surely be disappointed by the decision of the Fed’s policymaking board not to take new action to spur growth.

Fed Chairman Ben Bernanke is plainly not pleased by the level of cooperation he is receiving from others in Washington. As reported by The Washington Post (http://www.washingtonpost.com/business/economy/fed-sees-modest-economic-growth-wont-take-new-monetary-action/2011/11/02/gIQAlLtvfM_story.html?hpid=z2):

"Government policy more broadly appears to be on hold, with few prospects for a deeply divided Congress to take steps that would encourage job creation. Bernanke signaled his consternation with this inaction, saying, 'It would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs.'"

Is it only a "deeply divided Congress" which is unable "to take steps"? Or does the problem also entail a clueless president, now in campaign mode and busy playing the blame game?

Paul Krugman's "Bernanke's Perry Problem": Weaken the Dollar

In an New York Times op-ed entitled "Bernanke's Perry Problem" (http://www.nytimes.com/2011/08/26/opinion/bernankes-perry-problem.html?ref=opinion), Paul Krugman tells us that Governor Rick Perry is a "symbol of the political intimidation that is killing our last remaining hope for economic recovery" and says that he will be "shocked" if Federal Reserve Chairman Bernanke announces "anything significant" while speaking at the annual Federal Reserve gathering at Jackson Hole, Wyoming.

Krugman tells us what the Fed could do, if Bernanke were to take Bernanke's own advice found in a 2000 paper concerning Japan, which "was partly based on [Krugman's] own earlier work":

"Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, 'setting a target in the 3-4% range for inflation, to be maintained for a number of years,' which would encourage borrowing and discourage people from hoarding cash; and 'an attempt to achieve substantial depreciation of the yen,' that is, to reduce the yen’s value in terms of other currencies."

Well, the Fed has already announced that short-term interest rates will remain near zero for an extended period, and I would briefly like to focus on the effect of weakening the US dollar.

Note that the US dollar is already weak. Five years ago, the US dollar was worth some 0.78 euro, some 117 Japanese yen, some 1.11 Canadian dollars, and some 1.23 Swiss francs. Today, the US dollar is worth some 0.69 euro, some 76 Japanese yen, some 0.98 Canadian dollars, and some 0.83 Swiss francs. True, five years ago, the US dollar was worth some 0.53 British pounds, compared with some 0.61 British pounds today, but overall the US dollar has already been significantly debased.

Suppose now that the Chinese were to learn that their hoard of US dollars is about to be further debased. I can promise you that they will sell their US dollars, creating immediate and massive currency disruptions on world markets.

Imagine also the effect of a weaker US dollar on the price in US dollars of imported oil. Given higher gasoline prices, consumption will decline with short-term dire effects on the economy, and the US trade deficit will spiral higher.

Thanks, but no thanks, Paul.

Krugman concludes:

"With the Fed also intimidated into inaction, it’s hard to see any end to the ongoing economic disaster."

Query: Does Krugman view Obama as incapable of shaping America's economic future, and does it now all hinge upon the Fed?

Frank Bruni's "Heroes, Until They've Arrived": He's Not Referring to Obama

Texas Governor Rick Perry shot himself in the foot after taking aim at Federal Reserve Chairman Ben Bernanke, and speculation now abounds whether 41-year-old Congressman Paul Ryan will declare his readiness to run for president, given the fallow field of existing Republican candidates. Scuttlebutt has it that Ryan's wife, Jana, supports this endeavor (see: http://www.weeklystandard.com/blogs/big-names-encourage-paul-ryan-run_590322.html). What about Ryan?

In a New York Times op-ed entitled "Heroes, Until They've Arrived" (http://www.nytimes.com/2011/08/18/opinion/bruni-heroes-until-theyve-arrived.html?ref=opinion), Frank Bruni, not quite 37-years-old, who formerly served as the Times chief restaurant critic, takes aim at three young Republicans, whose names have recently arisen as viable presidential candidates -- Chris Christie, Paul Ryan and Marco Rubio. Bruni levels seething criticism at Ryan:

"As for Ryan, he’s the face of a proposed Medicare retrenchment that met widespread public protest, forgotten only because the debt-ceiling showdown stole the stage. It would be remembered in a general election, and he’d have to campaign as the blue-eyed Grinch Who Stole Grandma’s Boniva.

In the primaries, he’d have to explain a record that challenges his Immaculate Fiscal Conservative image. Before the 2010 midterms brought a stringent new orthodoxy, he voted for the auto bailout. He voted for TARP. That’s now Tea Party anathema and was precisely the cudgel Perry used to flatten Kay Bailey Hutchison in his 2010 re-election race."

So Ryan voted for the successful auto bailout that allowed thousands of US workers to keep their jobs? Sounds good to me.

Ryan also voted for The Troubled Asset Relief Program, which kept significant US employers afloat, and although originally expected to cost $300 billion, is now estimated to carry a price tag of less than $25 billion. This is a problem?

Of course, these positions could cost Ryan Tea Party support, but they make him that much more palatable to middle of the road Americans, and cast him as a person capable of substituting reason for impermeable conservative orthodoxy.

By all means, Ryan should declare his candidacy, and should he win the nomination, he should select Rubio as his vice presidential candidate. This intriguing possibility should keep Obama's mind occupied as he goes golfing in, oops, I meant governs from Martha's Vineyard, while Washington and the rest of the country are consumed by the flames of economic stagnation and unemployment.