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The danger posed by the deficit ‘is zero’ (LOL!)



May 13, 2010 – Comments (2)

This is comedic. Hubris is funny.


Galbraith: The danger posed by the deficit ‘is zero’
Ezra Klein


EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It's not overstated. It's completely misstated.  [My comment: ... LOL! ]

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. [My comment: Uhhhh.... If the Fed is backstopping all of the long dated Treasury purchases then it would be. i.e. Demand is artificial]. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn't rational. And if the market isn't rational, there's no point in designing policy to accommodate the markets because you can't accommodate an irrational entity. [My comment: LOL! especially if you (the Fed) are making the market and the irrational entity is yourself]

There is more to this trainwreck with lots of Keynesian pseudo-logic and gobbledy-gook (you need your swamp boots about 2 paragraphs down). Feel free to follow if you need more of a laugh, and I needed a good laugh today.

2 Comments – Post Your Own

#1) On May 13, 2010 at 7:33 PM, outoffocus (23.22) wrote:

JG: Is there any terrible consequence because we haven't prefunded the defense budget? No. There's only one budget and one borrowing authority and all that matters is what that authority pays. Say I'm the federal government and I wish to pay you, Ezra Klein, a billion dollars to build an aircraft carrier. I put money in your bank account for that. Did the Federal Reserve look into that? Did the IRS sign off on it? Government does not need money to spend just as a bowling alley does not run out of points.

Thats the dumbest thing I ever heard.  How do I tear up this logic (if you can even call it that)?  First, wth does a bowling alley have to do with deficits? Second, lets entertain his horrible analogy for a second.  A bowling alley doesn't run out of point. No, but a bowling game is LIMITED to 300 points per person (perfect game). Everyone cannot have a perfect game because the game has RULES. If any person was able to just go into the bowling alley, throw a bunch of gutter balls and get a 400 point game or even a 1000 point game, then bowling would eventually become WORTHLESS.

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#2) On May 13, 2010 at 9:26 PM, binve (< 20) wrote:

outoffocus ,

>>Thats the dumbest thing I ever heard.

You are preaching to the choir :)..

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