Krugman: Invisible Cavalry To The Rescue!

[Kurt_and_Hunter]

Invisible Cavalry To The Rescue!
August 27, 2010, 2:12 pm
Paul Krugman

I’ve written a lot about the invisible bond vigilantes who have terrorized policy makers, even though there’s no actual evidence for their existence. But after Ben Bernanke’s speech this morning, it seems to be that I should also start writing about the invisible cavalry, which is always about to come to our rescue, but somehow never arrives.

Bernanke more or less admitted that the economic situation has developed not necessarily to America’s advantage, nothing like the growth he was predicting six months ago. But he argued that 2011 will be better, because … well, it was hard to see exactly why. He offered no major drivers of growth, just a general argument that businesses will invest more despite huge excess capacity, and consumers spend more despite still-huge debts and home prices that are likely to resume their decline.

Oh, and sure enough, he declared that inflation expectations are well-anchored, although the market says otherwise.

So: I guess this speech marked a small step toward QE2 and all that. But mainly the message was that just around the corner, there’s a rainbow in the sky.

http://krugman.blogs.nytimes.com/2010/08/27/invisible-cavalry-to-the-rescue/

Note: "QE2" is short-hand for "quantitative easing, round two." Quantitative Easing is a Fed-speak euphemism for creating money.

[taught_me_patience]

1. Kurt... I know you are in the inflation (in moderate amounts) is good camp

but, I really don't see how QE2 will be good for the economy. Bernanke is not addressing the underlying issue of wage deflation in the middle class. QE2 simply addresses the symptom of the problem... much like tylenol addresses the pain of the headache, but not the root cause. I strongly believe that QE2 will set America up for stagflation... lower incomes with higher prices (mainly reflected in commodities).

[Kurt_and_Hunter]

3. There is always a nuance to this question.

Say QE2 creates some inflation. If so, then it has done something that nobody has been able to do despite efforts that RW economists believed would usher in hyper-inflation at least a year ago.

I am less concerned about the inflationary aspects of QE2 than I am about the distinct possibility that it will have no effect at all.

I have come around to the view that concrete monetary policy cannot do much at all in a liquidity trap and that (as Krugman and Bernanke both said about Japan way back when) that the only real bullet the Fed has is advertising future policy.

Set a high inflation target (high being something actually pretty low, like 4%) for two years.

Bernanke won't pull the trigger on that rhetorical gun but seems to be coming around to what he knew as a professor that Fed information can be more important than Fed action. He said today that they might announce a specific time frame for 0% fed funds rate instead of just "for an extended period".

Same idea as the inflation thing. Baby steps.

I am not a fan of inflation for its own sake, but I am persuaded that we can handle it a lot better than the alternative and that it would hasten this process.

One way or another the market needs to catch-up with half the houses in America before we can get anywhere. A few points of inflation will cut years off that process.

Believe, me... I get that inflation is scary. I was an adult in the late 1970s. I do not, however, see any alternative.

[BootinUp]

4. This is the battle front, the fear left over from stagflation. nt

[RandomThoughts]

2. I hear that alot also.

And do not wait for that reason, it can be to get people to do nothing, when they should do something. I am done waiting personally.

Although I did wait till I proved that such comments were deceptive, and for another purpose.


I don't wait anymore, I am claiming what is mine, and will do nothing to make sure I receive just compensation, beer and travel finances, and good times.


Totally off topic, but watching Tweety right now.
That Florida Democrat on Tweety is smoken hot, and she is so smart, glad she is on the Democratic side.

[onethatcares]

5. because Bernanke said the tax cuts have to continue, at least

for another 2 years.

we're fucked, bent over, done in, totally in debt for the rest of our kids and grandkids lives because the rich needed another car or vacation.

it has nothing to do with wars, trade imbalances, or any of the things that used to make sense of bad economic times. we're fucked because the rich

folks need another jet airplane, or jet boat, or maybe a diamond to give to the whore that gets them semi hard for a minute.

boom, boom, outen all the lights.

[BootinUp]

7. When did Bernanke advocate

extension of tax cuts? I must have over looked it.

Great song reference. Had to go find it: http://www.youtube.com/watch?v=oBf1e6WWWA0

Better version (live): http://www.youtube.com/watch?v=0bZTSUt84YA

[onethatcares]

8. it was either in his speech or an interview directly after

his thoughts were, and this isn't a direct quote. "the tax cuts should remain for another two years and at that point begin phasing them out slowly".

I was walking past my tv when he said that and all I could do was give him the one finger salute.

[BlueCheese]

6. Subtle snark from Krugman

If I remember correctly, in Hirohito's broadcast to the Japanese people announcing the surrender, he said that the war situation had "developed not necessarily to Japan's advantage."