Paul Krugman has officially lost all credibility

[TheBreeze]

[quote=patientrenter]who happens to be a very good economist in his private life.[/quote]

Based on what criteria?

As for him supposedly being a liberal, I find it peculiar that he supports trickle-down economic theories such as loose/easy money and stimulus packages which mainly benefit the connected/wealthy.

[Arraya]

[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

[/quote]

Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.

Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly

* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

[Arraya]

[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

[/quote]

Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.

Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly

* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

[Arraya]

[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

[/quote]

Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.

Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly

* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

[Arraya]

[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

[/quote]

Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.

Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly

* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

[Arraya]

[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

[/quote]

Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.

Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly

* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Arraya]

http://theautomaticearth.blogspot.com/
The Fed is not omnipotent, especially in comparison to the weight of the collective that will be ranged against it once the market turns. If it were possible to print one’s way out of trouble then we would never have seen periods of deflation historically. No one can print confidence. All they can do is to play confidence games temporarily – promising to stand behind everything, knowing perfectly well that it’s a promise they could not keep. They hope that by making it, they will not have to keep it, but the market is very good at calling desperate bluffs like that.

The market will turn when confidence does, and I believe that will be soon. As I have said before, this will not lead to an imminent bond market dislocation. First I would expect a flight to safety and record low nominal interest rates. IMO a bond market dislocation, where rates shoot up into the double digits, is perhaps a year away, at an initial guess. When it happens it will be because everyone will be trying to borrow (this being a global crisis) and few of the very small number of parties still able to lend will wish to do so, due to tremendous (and entirely understandable) risk aversion.

The global economy is not a machine that can be directed with appropriate levers. It is a messy, subjective and thoroughly irrational human construct. Crowd psychology is the most important element to understand in predicting what it will do next.

IMO we will see the Fed revealed as essentially powerless (as the little man behind the curtain) as the next leg of this crisis unfolds. It was never a public service duty bound to trash its own balance sheet for the supposed wider benefit, although it has done so to some extent. IT has limits, and we are going to see them soon enough.

The anger and recrimination that are coming this time will be something almost none of us have any experience with, and it will be terribly easy to be caught up in it. Don’t do it, as that kind of vengeful and punitive mindset will drain energy and resources from what you need to do to help yourself and your loved ones. Ultimately it fractures the trust that holds society together at a time when cohesiveness matters most. While this is inevitable at a national scale, it need not be at a very local level where a few individuals can make a difference.

We will eventually see a default. It is simply inevitable. You just can’t keep kicking the can down the road indefinitely. However, just because a default is inevitable does not mean it is imminent. A flight to safety is a knee-jerk reaction to threat. It is not a rational response and does not look at the reality of the dollar’s position. A rush to the dollar is something people will do on an emotional imperative, and it will push up the value of the dollar substantially. Betting on a dollar carry trade is therefore a sucker play – evidence of an imminent dollar bottom in fact.

The dollar should first rise and then collapse in value. I would expect the rising phase to last perhaps a year. When the collapse happens it will probably coincide with the coming bond market dislocation. However, the value of the dollar relative to other currencies will be much less important in practice than the value of cash in relation to available goods and services domestically.

[Arraya]

http://theautomaticearth.blogspot.com/
The Fed is not omnipotent, especially in comparison to the weight of the collective that will be ranged against it once the market turns. If it were possible to print one’s way out of trouble then we would never have seen periods of deflation historically. No one can print confidence. All they can do is to play confidence games temporarily – promising to stand behind everything, knowing perfectly well that it’s a promise they could not keep. They hope that by making it, they will not have to keep it, but the market is very good at calling desperate bluffs like that.

The market will turn when confidence does, and I believe that will be soon. As I have said before, this will not lead to an imminent bond market dislocation. First I would expect a flight to safety and record low nominal interest rates. IMO a bond market dislocation, where rates shoot up into the double digits, is perhaps a year away, at an initial guess. When it happens it will be because everyone will be trying to borrow (this being a global crisis) and few of the very small number of parties still able to lend will wish to do so, due to tremendous (and entirely understandable) risk aversion.

The global economy is not a machine that can be directed with appropriate levers. It is a messy, subjective and thoroughly irrational human construct. Crowd psychology is the most important element to understand in predicting what it will do next.

IMO we will see the Fed revealed as essentially powerless (as the little man behind the curtain) as the next leg of this crisis unfolds. It was never a public service duty bound to trash its own balance sheet for the supposed wider benefit, although it has done so to some extent. IT has limits, and we are going to see them soon enough.

The anger and recrimination that are coming this time will be something almost none of us have any experience with, and it will be terribly easy to be caught up in it. Don’t do it, as that kind of vengeful and punitive mindset will drain energy and resources from what you need to do to help yourself and your loved ones. Ultimately it fractures the trust that holds society together at a time when cohesiveness matters most. While this is inevitable at a national scale, it need not be at a very local level where a few individuals can make a difference.

We will eventually see a default. It is simply inevitable. You just can’t keep kicking the can down the road indefinitely. However, just because a default is inevitable does not mean it is imminent. A flight to safety is a knee-jerk reaction to threat. It is not a rational response and does not look at the reality of the dollar’s position. A rush to the dollar is something people will do on an emotional imperative, and it will push up the value of the dollar substantially. Betting on a dollar carry trade is therefore a sucker play – evidence of an imminent dollar bottom in fact.

The dollar should first rise and then collapse in value. I would expect the rising phase to last perhaps a year. When the collapse happens it will probably coincide with the coming bond market dislocation. However, the value of the dollar relative to other currencies will be much less important in practice than the value of cash in relation to available goods and services domestically.

[Arraya]

http://theautomaticearth.blogspot.com/
The Fed is not omnipotent, especially in comparison to the weight of the collective that will be ranged against it once the market turns. If it were possible to print one’s way out of trouble then we would never have seen periods of deflation historically. No one can print confidence. All they can do is to play confidence games temporarily – promising to stand behind everything, knowing perfectly well that it’s a promise they could not keep. They hope that by making it, they will not have to keep it, but the market is very good at calling desperate bluffs like that.

The market will turn when confidence does, and I believe that will be soon. As I have said before, this will not lead to an imminent bond market dislocation. First I would expect a flight to safety and record low nominal interest rates. IMO a bond market dislocation, where rates shoot up into the double digits, is perhaps a year away, at an initial guess. When it happens it will be because everyone will be trying to borrow (this being a global crisis) and few of the very small number of parties still able to lend will wish to do so, due to tremendous (and entirely understandable) risk aversion.

The global economy is not a machine that can be directed with appropriate levers. It is a messy, subjective and thoroughly irrational human construct. Crowd psychology is the most important element to understand in predicting what it will do next.

IMO we will see the Fed revealed as essentially powerless (as the little man behind the curtain) as the next leg of this crisis unfolds. It was never a public service duty bound to trash its own balance sheet for the supposed wider benefit, although it has done so to some extent. IT has limits, and we are going to see them soon enough.

The anger and recrimination that are coming this time will be something almost none of us have any experience with, and it will be terribly easy to be caught up in it. Don’t do it, as that kind of vengeful and punitive mindset will drain energy and resources from what you need to do to help yourself and your loved ones. Ultimately it fractures the trust that holds society together at a time when cohesiveness matters most. While this is inevitable at a national scale, it need not be at a very local level where a few individuals can make a difference.

We will eventually see a default. It is simply inevitable. You just can’t keep kicking the can down the road indefinitely. However, just because a default is inevitable does not mean it is imminent. A flight to safety is a knee-jerk reaction to threat. It is not a rational response and does not look at the reality of the dollar’s position. A rush to the dollar is something people will do on an emotional imperative, and it will push up the value of the dollar substantially. Betting on a dollar carry trade is therefore a sucker play – evidence of an imminent dollar bottom in fact.

The dollar should first rise and then collapse in value. I would expect the rising phase to last perhaps a year. When the collapse happens it will probably coincide with the coming bond market dislocation. However, the value of the dollar relative to other currencies will be much less important in practice than the value of cash in relation to available goods and services domestically.

[Arraya]

http://theautomaticearth.blogspot.com/
The Fed is not omnipotent, especially in comparison to the weight of the collective that will be ranged against it once the market turns. If it were possible to print one’s way out of trouble then we would never have seen periods of deflation historically. No one can print confidence. All they can do is to play confidence games temporarily – promising to stand behind everything, knowing perfectly well that it’s a promise they could not keep. They hope that by making it, they will not have to keep it, but the market is very good at calling desperate bluffs like that.

The market will turn when confidence does, and I believe that will be soon. As I have said before, this will not lead to an imminent bond market dislocation. First I would expect a flight to safety and record low nominal interest rates. IMO a bond market dislocation, where rates shoot up into the double digits, is perhaps a year away, at an initial guess. When it happens it will be because everyone will be trying to borrow (this being a global crisis) and few of the very small number of parties still able to lend will wish to do so, due to tremendous (and entirely understandable) risk aversion.

The global economy is not a machine that can be directed with appropriate levers. It is a messy, subjective and thoroughly irrational human construct. Crowd psychology is the most important element to understand in predicting what it will do next.

IMO we will see the Fed revealed as essentially powerless (as the little man behind the curtain) as the next leg of this crisis unfolds. It was never a public service duty bound to trash its own balance sheet for the supposed wider benefit, although it has done so to some extent. IT has limits, and we are going to see them soon enough.

The anger and recrimination that are coming this time will be something almost none of us have any experience with, and it will be terribly easy to be caught up in it. Don’t do it, as that kind of vengeful and punitive mindset will drain energy and resources from what you need to do to help yourself and your loved ones. Ultimately it fractures the trust that holds society together at a time when cohesiveness matters most. While this is inevitable at a national scale, it need not be at a very local level where a few individuals can make a difference.

We will eventually see a default. It is simply inevitable. You just can’t keep kicking the can down the road indefinitely. However, just because a default is inevitable does not mean it is imminent. A flight to safety is a knee-jerk reaction to threat. It is not a rational response and does not look at the reality of the dollar’s position. A rush to the dollar is something people will do on an emotional imperative, and it will push up the value of the dollar substantially. Betting on a dollar carry trade is therefore a sucker play – evidence of an imminent dollar bottom in fact.

The dollar should first rise and then collapse in value. I would expect the rising phase to last perhaps a year. When the collapse happens it will probably coincide with the coming bond market dislocation. However, the value of the dollar relative to other currencies will be much less important in practice than the value of cash in relation to available goods and services domestically.

[Author]

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