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starbucks4ever (94.15)

Idiot of the day: Krugman

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November 03, 2010 – Comments (8)

How could I deny Krugman his Idiot of the Day award, which he so amply deserved with this complaint

"And $600 billion really isn’t a lot when you’re trying to move a $15 trillion economy"

This could be the most moronic statement ever made by an economist. For reference, $869 billion was the total balance sheet of the Fed in August 2007, and it was moving a $14 trillion economy.   

8 Comments – Post Your Own

#1) On November 03, 2010 at 11:41 PM, ajm101 (32.68) wrote:

It almost seems that you cherry-picked 2007.  I seem to recall a couple of developments in the US economy, and the global financial system since then.

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#2) On November 03, 2010 at 11:42 PM, ajm101 (32.68) wrote:

And really, they're making a Tron sequel.  Whoever had that idea should get your award every day for the rest of the year.

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#3) On November 04, 2010 at 12:11 AM, starbucks4ever (94.15) wrote:

#1,

I didn't cherry-pick 2007. Any other year except 2008-9 would tell the same story. 

#2,

I give the awards for individual statements or actions, not for lines of thought or political affiliations. One and the same person can get the award multiple times if he makes multiple and totally original idiotic statements. 

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#4) On November 04, 2010 at 1:32 AM, ajm101 (32.68) wrote:

You're completely correct, the Federal Reserve's balance sheet was flat until from 2007 until late 2008. Up to that point they only replaced most of their higher quality securities with garbage in order to rescue the financial system, and lowered interest rates until they hit the zero lower bound in order to stimulate the economy.

Let me rephrase, if the interest rates are already up against zero and a central bank must use quantitative easing to stimulate the economy, then what is an appropriate amount of balance sheet expansion in order to achieve that stimulus, if not 4% of the GDP?

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#5) On November 04, 2010 at 4:00 AM, AbstractMotion (52.03) wrote:

@ajm101:  One has to agree with the premise that the Fed must in fact stimulate the economy at this point for that to be true, which is at best debtable at this point.  We've succesfully avoided a deflationary spiral at this point and really the Fed should be hold things steady until wage inflation starts kicking in. 

 

This is where Krugman really bugs me, he always pushes far beyond the scope of counter cyclical spending and responsible monetary policy.  He's right in the sense that $600 billion isn't going to make much of a dent given the huge overhang of debt and unemployment, but in order to actually have a significant impact the Fed would have to decimate the dollar at this point.  I know Krugman doesn't have a problem with doing that since the the prospect of low growth is apparently some kind of super boogie man in his book.  As you've pointed out the last time the Fed intervened in the markets where doing alright, but not great, the long term effects were anything but positive.  Thomas Hoenig seems to be the only person at the Fed cognoscente of that risk currently.  When the Fed actually gets to the point where maintaining growth and price stability butts heads it's a good indicator that it's about to enter dangerous, uncharted territory and is better off admitting it's done as much as it can do responsibly.

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#6) On November 04, 2010 at 7:05 AM, whereaminow (< 20) wrote:

Nice post zloj. 

"And $600 billion really isn’t a lot when you’re trying to move a $15 trillion economy"

Who, exactly, is trying to move the economy?  How, exactly, does adding $600B move an economy?  Why, exactly, should a central planner attempt to move an economy instead of the actors within that economy?  Why, exactly, should an economy be measured by aggregate benchmarks that have little-to-no relation to real wealth, and then prodded and moved toward that benchmark?

Of course, Krugman is above answering such questions, since they are "unscientific" in his view.

David in Qatar

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#7) On November 04, 2010 at 9:25 AM, starbucks4ever (94.15) wrote:

#4,

The appropriate amount of balance sheet expansion was zero, zilch, nada. The right response to a recession was to bankrupt financial speculators and move on, but already without them. 

#5,

QE2 was an obvious overkill even in the twisted logic of Krugman-Bernanke. Before Nov 3 we already had growing economy and rising inflation. It was the time to apply brakes hard. 

#6,

I don't have an issue with central planning per se, only with the lousy job these central planners are doing. A 7% inflation is now a certainty. 

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#8) On November 04, 2010 at 1:35 PM, AbstractMotion (52.03) wrote:

@zloj: I agree mostly, I wouldn't start tighening yet but I think it'd be safe to let QE1 wind down on it's own at this point.  To his credit Bernake did unwind some of the Fed's credit facilities and bank lending programs earlier this year too.

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