"We don’t know exactly why;" - Are you kidding, Prof. Krugman?
It is because of Pedro Cruz Villalon's statement concerning looming QE by the ECB.
The Swiss can't print money endlessly to keep up with the printing of Euros by the ECB. The ECB is going to buy AAA-rated bonds form Germany and BBB- from the South. All with no democratic legitimation. Something dark-brown is going to hit the fan shortly.
It is because of Pedro Cruz Villalon's statement concerning looming QE by the ECB.
The Swiss can't print money endlessly to keep up with the printing of Euros by the ECB. The ECB is going to buy AAA-rated bonds form Germany and BBB- from the South. All with no democratic legitimation. Something dark-brown is going to hit the fan shortly.
7
You have to know the situation what the situation Switzerland faced in August/September 2011. Over years the real exchange rate EUR/CHF was on stable level, but with the beginning of the financial crisis in 2008/09 and the crisis in Greece the Swiss franc increased suddenly against the Euro, which threatens the whole export sector of Switzerland. This was the main reason the Swiss National Bank (SNB) introduced a minimum exchange rate of 1.20 CHF/EUR. Of course the SNB had to mention a „risk of a deflationary development“ because normally it’s not its mandate to support the exporting industry, but from my perspective the price level was definitely not a big concern.
And now after three years the SNB probably concluded the industry is now prepared for a higher exchange rate. If it is really the case, the future will show.
By the way I was just aware that Switzerland is famous for its wristwatches. ;)
And now after three years the SNB probably concluded the industry is now prepared for a higher exchange rate. If it is really the case, the future will show.
By the way I was just aware that Switzerland is famous for its wristwatches. ;)
1
You have to know the situation Switzerland faced in August/September 2011. Over years the real exchange rate EUR/CHF was on stable level, but with the beginning of the financial crisis in 2008/09 and the crisis in Greece the Swiss franc increased suddenly against the Euro, which threatens the whole export sector of Switzerland. This was the main reason the Swiss National Bank (SNB) introduced a minimum exchange rate of 1.20 CHF/EUR. Of course the SNB had to mention a „risk of a deflationary development“ because normally it’s not its mandate to support the exporting industry, but from my perspective the price level was definitely not a big concern.
And now after three years the SNB probably concluded the industry is now prepared for a higher exchange rate. If it is really the case, the future will show.
By the way I was just aware that Switzerland is famous for its wristwatches. ;)
And now after three years the SNB probably concluded the industry is now prepared for a higher exchange rate. If it is really the case, the future will show.
By the way I was just aware that Switzerland is famous for its wristwatches. ;)
6
“Karma and economics lesson” might not be a rational pair to connect. But after all these years of allowing the riches of the poor countries to hide their money in tax-free Swiss accounts, it may be that there is a morality lesson too here.
3
I'm sorry, dear Dr. K, but did you say "let's learn..."? Surely you can't be saying this with the expectation that our good and noble representatives in the GOP will actually base their positions on facts or logic? Why, that would almost be tantamount to reason. The next thing you'll say is that they should base scientific policy on actual science!
My dear, esteemed Dr. Krugman, I fear you may be sliding into madness.
(That said, thank you for being a lonely voice of reason in a world gone mad).
My dear, esteemed Dr. Krugman, I fear you may be sliding into madness.
(That said, thank you for being a lonely voice of reason in a world gone mad).
29
Applause for the Swiss who never succumbed to the pedantic "go along to get along" that Krugman recommends.
9
Krugman reports the Swiss stated they were “prepared to buy foreign currency in unlimited quantities” on implementation of their pegging policy. If the Swiss, famed for their conservative tendencies, gave up on this -- abruptly -- than what does that say about Draghi's open-ended promise to "do whatever it takes…"
Be afraid. Very afraid… (Or at least skeptical and highly defensive in your financial position.)
Be afraid. Very afraid… (Or at least skeptical and highly defensive in your financial position.)
9
What a shame, Prof Krugman, that you used such a lame cliche for your lead-in: Switzerland has nothing to do with cuckoo clocks, they are made in the Black Forest which is in southern Germany. Americans continue to believe this fallacy since Orson Wells pronounced it in "The Third Man".
9
Been reading your column for years and while I do not often agree with you, this time you are spot on! Thanks
3
Thanks. You asked:
"Right now serious people — the same serious people who decided, wrongly, that 2010 was the year we should pivot from jobs to deficits — seem to be arriving at a consensus that the Fed should start hiking very soon. But why?"
Consider that serious people see it in their political interest to do so. As Upton Sinclair wrote long ago: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
"Right now serious people — the same serious people who decided, wrongly, that 2010 was the year we should pivot from jobs to deficits — seem to be arriving at a consensus that the Fed should start hiking very soon. But why?"
Consider that serious people see it in their political interest to do so. As Upton Sinclair wrote long ago: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
6
So weird to be Krugman reader and listen to all the conservatives at work worried about the debt....
4
Dear Mr. Krugman,
Too bad the Swiss don't have a bunch of looted art and gold to invest in like they did with the Germans in WW2; I'll bet that could solve their "monetary woes".
As for comparing Switzerland to the United States, when's the last time this powerful little country bailed out all of Europe much as this country did in WW1 and WW2? That's right, they are "neutral", at least on paper. This doesn't stop them from being "opportunistic" but just a tad "unseemly" when it comes to asking where the gold came from or if that artwork was legally obtained or phrases such as "Certainly, Mr. Escobar, you can open as many numbered accounts as you like!"
I absolutely agree with one thing in your column; we DON'T want to be "turning Swiss" with all the baggage that turning might involve. I don't think a giant "money laundering" operation is what the Founding Fathers had in mind when setting up this whole shebang.
But they do make great chocolate. That I will concede.
Too bad the Swiss don't have a bunch of looted art and gold to invest in like they did with the Germans in WW2; I'll bet that could solve their "monetary woes".
As for comparing Switzerland to the United States, when's the last time this powerful little country bailed out all of Europe much as this country did in WW1 and WW2? That's right, they are "neutral", at least on paper. This doesn't stop them from being "opportunistic" but just a tad "unseemly" when it comes to asking where the gold came from or if that artwork was legally obtained or phrases such as "Certainly, Mr. Escobar, you can open as many numbered accounts as you like!"
I absolutely agree with one thing in your column; we DON'T want to be "turning Swiss" with all the baggage that turning might involve. I don't think a giant "money laundering" operation is what the Founding Fathers had in mind when setting up this whole shebang.
But they do make great chocolate. That I will concede.
2
how is that krugman's work in trade theory makes him an "expert" in monetary policy? it isn't, were it not for the fawning idolatry of the NYT set and other laughable lemmings, so eager to follow this supposed "rockstar" of economics over the cliff. i'll stick with steve keen. thanks, but not thanks…..
8
The 1.2 cap was never under serious threat. The SNB had and still has the power to purchase Euros in "unlimited quantities" beacuse it can always print more francs to satisfie demand for CHF if the 1.2 line is (was) being threatened. I think the Swiss abandoned the cap (and all its operational hassles) because they thought they could achieve the same objective with negative interest rates. That was wrong, obviously.....
Switzerland is not famous for cuckoo clocks, the Black Forest is famous for cuckoo clocks. The Black Forest is in Germany.
Calvin however lived in Switzerland. The Calvinists mainly lived in Switzerland, not Germany.
And by the way, "structural reform" does not necessarily mean less jobs or reduced salaries. Structural reform is what the Eurozone needs to get sgnificantly homogenous.
But never mind, Prof. Krugman, that is just details.
Calvin however lived in Switzerland. The Calvinists mainly lived in Switzerland, not Germany.
And by the way, "structural reform" does not necessarily mean less jobs or reduced salaries. Structural reform is what the Eurozone needs to get sgnificantly homogenous.
But never mind, Prof. Krugman, that is just details.
5
Too bad Republicants don't read Prof. K.
6
Definitely written for those people who think managing an economy is the same as balancing a checkbook. Unfortunately those people will never get it.
2
Krugman - push the gas tax - now's the time
2
Is Krugman feeling sickly? He did not bash the Republicans once in this article.
2
The IMF just reduced world growth for 2015. While unemployment has come down, there is still little wage growth and inflation is stalled. The FED would have to have its head in the sand to raise rates.
1
The Swiss never made cuckoo clocks, d-mmit! Didn't you see Orson Welles's interview about how he was corrected on that score by the Swiss after he made up the line in the Third Man?
4
I wonder if this will stop UK (and no doubt US) bankers arguing that if you put taxes up at the higher end they will move to Switzerland.
I suppose there's always Hong Kong, where all is well. Umbrella anyone?
I suppose there's always Hong Kong, where all is well. Umbrella anyone?
Thank you Mr. Krugman.
5
Mr. Krugman's war against stupidity continues apace.
4
"Ah, Switzerland, famed for cuckoo clocks and sound money." Yes, Switzerland, famed for a home to the big criminals of the world to hid hot money, not to mention the Putin's and other despots to hid huge sums sucked from their respective countries. How else could huge sums of illegally gotten gains be safely hidden from authorities. Where would the big criminals of the world be without countries like Switzerland?
6
What does the country need?
Well paying jobs.
If people are working, producing, and spending, we get a virtuous circle where the money they spend provides more decent jobs for other people. What do we need to provide these well paying jobs?
Well, gee, we need money, money in the private sector, money to pay for these jobs,
We must keep the balance sheet of the private sector positive. More money must come into it than goes out. Where does money flow from and to?
There are two places. First, the federal government. When it spend, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net. THE FEDERAL DEFICIT IS INCOME FOR PEOPLE, BUSINESSES, AND STET AND LOCAL GOVERNMENTS..
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Australia.
Today we have a large negative trade balance. We need a large deficit.
This is a simplification. There are matters I left out like once we have full employment or if we have shortages, we must cut back on spending or raise taxes to avoid inflation. Also federal spending must get the money to those who need it and will spend it, not those who do not need it and will speculate with it.
Well paying jobs.
If people are working, producing, and spending, we get a virtuous circle where the money they spend provides more decent jobs for other people. What do we need to provide these well paying jobs?
Well, gee, we need money, money in the private sector, money to pay for these jobs,
We must keep the balance sheet of the private sector positive. More money must come into it than goes out. Where does money flow from and to?
There are two places. First, the federal government. When it spend, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net. THE FEDERAL DEFICIT IS INCOME FOR PEOPLE, BUSINESSES, AND STET AND LOCAL GOVERNMENTS..
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Australia.
Today we have a large negative trade balance. We need a large deficit.
This is a simplification. There are matters I left out like once we have full employment or if we have shortages, we must cut back on spending or raise taxes to avoid inflation. Also federal spending must get the money to those who need it and will spend it, not those who do not need it and will speculate with it.
8
"What you need to understand is that all the usual rules of economic policy changed when financial crisis struck in 2008; we entered a looking-glass world, and we still haven’t emerged."
* * * *
"So let’s learn from the Swiss. They’ve been careful; they’ve maintained sound money for generations. And now they’re paying the price."
Is he recommending Alice In Wonderland fantasy over "sound money?"
* * * *
"So let’s learn from the Swiss. They’ve been careful; they’ve maintained sound money for generations. And now they’re paying the price."
Is he recommending Alice In Wonderland fantasy over "sound money?"
4
Dr. Krugman, I am very sorry but you are wrong. I know it doesn't happen very often but there is a serious error in your column.
Cuckoo clocks are German (more specifically The Black Forest), not Swiss. While the Swiss produce some expensive knock-offs, they have only copied this idea, they did not invent it.
Cuckoo clocks are German (more specifically The Black Forest), not Swiss. While the Swiss produce some expensive knock-offs, they have only copied this idea, they did not invent it.
69
"Ah, Switzerland, famed for cuckoo clocks and sound money. Other nations may experiment with radical economic policies, but with the Swiss you don’t get surprises."
Well, my personal feeling is that European policy makers need to start looking at ways to back out of the Eurozone, NATO and the EU as a whole. NATO is a cold war relic, and the EU is a redundant and expensive experiment that hasn't really worked out. Southern Europe would be better off almost immediately by abandoning the Euro.
Also, you forgot to include chocolate in your description of things the Swiss are famous for! Unforgivable.
Well, my personal feeling is that European policy makers need to start looking at ways to back out of the Eurozone, NATO and the EU as a whole. NATO is a cold war relic, and the EU is a redundant and expensive experiment that hasn't really worked out. Southern Europe would be better off almost immediately by abandoning the Euro.
Also, you forgot to include chocolate in your description of things the Swiss are famous for! Unforgivable.
4
Actually, Kevin, the Republicans DO read Mr. Krugman's column, religiously in fact. What Mr. Krugman should do is opine promoting the opposite of what we should be doing, because then the leadership in Washington will do the opposite of that, which will put us right where we need to be.
7
Isn't Switzerland a haven for dirty money or tax cheats? What's so great about that?
4
" This is one reason that slashing government spending in a depressed economy is such a bad idea: It’s not just the immediate cost in lost jobs, but the increased risk of getting caught in a deflationary trap."
******************
Unfortunately, too many Americans don't seem to grasp this point. We should be spending on infrastructure, education, research and development, and other public investments because the borrowing costs are next to nothing. Somehow I hope that the few economists who advise the Republicans grasp this point and try to persuade their clients that we need to increase spending, not decrease it.
******************
Unfortunately, too many Americans don't seem to grasp this point. We should be spending on infrastructure, education, research and development, and other public investments because the borrowing costs are next to nothing. Somehow I hope that the few economists who advise the Republicans grasp this point and try to persuade their clients that we need to increase spending, not decrease it.
14
don't worry, if the Republicans have their way we will join the deflationary spiral
4
Just a word about simple, clear argument. Long ago, I did not think that I could
ever understand the arguments and viewpoint of a Nobel award holder. But, I was wrong. The greatest pleasure I get from regularly reading Paul Krugman is
that I understand him. Sometimes I get lost in the swirl of technical stuff but on
the whole, I am a layman who understands his writings. It's so important,obviously, to understand what you believe in and Paul Krugman
makes it easy to do.
ever understand the arguments and viewpoint of a Nobel award holder. But, I was wrong. The greatest pleasure I get from regularly reading Paul Krugman is
that I understand him. Sometimes I get lost in the swirl of technical stuff but on
the whole, I am a layman who understands his writings. It's so important,obviously, to understand what you believe in and Paul Krugman
makes it easy to do.
8
as usual all roads lead to the magic of government spending more. whatever the issue, cause, problem, you can count on Krugman to declare that the magic bullet is a .44 magnum government program. broken record, very unsound policy, and oh yeah completely off topic.
4
"And in the case of the Swiss, having a reputation for safe banks and sound money became a major liability."
Too bad Switzerland didn't suffer through a housing bubble, bank failures, an economic depression and high unemployment like everyone else. What the hell were they thinking!
Too bad Switzerland didn't suffer through a housing bubble, bank failures, an economic depression and high unemployment like everyone else. What the hell were they thinking!
8
I don't know if you know this, but the Swiss and their franc are the absolute darlings of goldbug cranks. To such people they are the acme of hard money probity; if the doughty Swiss and their famous bankers do something hard moneyish it is proof that hard money is right and good. (If they don't -- like when they tried to fight deflation by "printing money," it gets ignored. Similarly, "the markets" are all-wise and all-powerful -- when they are saying the right things. The rest of the time they are a threat of the sort some parents use against children: "Wait until the markets find out!" But i digress...). You'll be seeing articles in the usual places soon, trumpeting the wisdom of the Swiss.
2
Why? I think the Swiss have concluded that Europe will be at war in the next year or two. Thats why.
3
AS of late I see little to fear of deflation in the US, evrytime I tirn around with the exception of gas at the pump everything else has risen in price. I notice it most at the grocery store.
2
Science is fact based. These economic predictions based on fear and trembling and personal interpretations of what caused one country's economic problems verses current problems are all fine, probably accurate, but is there any data that can go into a model, with error bars on both the model and the data, so judgments can be reasonably based on more than my opinions or your opinions is required. I'll never forget an autobiography saying how a particular ex-head of the Fed had saved the world, many times, and two years later hearing him say he was probably mistaken, and might have been wrong in advocating removal of legal restraints from the banks and investment houses. If we can't put more science into economics let's at least put some decent statistics out about consequences of various governmental attempts to "guide the economy". Opinions are like...elbows, everybody has them.
6
Isn't this just the world reacting to "the expectation of a new Republican Congress.” like Mr. McConnell boasted?
6
This is Krugman at his best as far as I'm concerned: explaining complex economic issues to laymen like me. But as clearly as he writes I still find myself
somewhat bemused. A lot of this stuff is counter-intuitive and easy to spin for right wing demagogues and capitalists. (Limbaugh/Koch etc.)
Keep on explaining Dr. Krugman. I'm listening.
somewhat bemused. A lot of this stuff is counter-intuitive and easy to spin for right wing demagogues and capitalists. (Limbaugh/Koch etc.)
Keep on explaining Dr. Krugman. I'm listening.
9
Wow! What an illuminating article. Thank you Dr. Krugman.
3
There are a lot of problems in the EU but at least it's a very big market. So, as long as you don't have to convert currencies ofte it's not hitting you immediately.
The Swiss economy will have very hard times ahead. Germany is waiting to take over the business, having the advantage of a cheap EUR at the moment. And they can deliver what the Swiss do as well.
So, this is a (small?) boom booster for Germany. Companies switching suppliers from Swiss to Germany will do this, in case they expect the exchange rates to stay for quite some time somehow like now. Switching suppliers is something you try to avoid, but do if necessary. But if you did it, you won't do it for a couple of years again... This whole production oriented export stuff is not a fast changing setup like in financial markets.
And let's state it the necessity to manage currency exchange topics is much higher for the Swiss than for the EU companies / people etc. It's to easy to work around them in the global market. Note: I'm living in Switzerland and I love this country and people, don't get me wrong here. But either playing with the big fish or waiting what happens while being with them, can become very dangerous for the small ones.
People here are now going crazy to buy in the EU because it's so cheap. Of course, and I'm wondering how many understand that by doing this, they are biting the hand that feeds them.
The Swiss economy will have very hard times ahead. Germany is waiting to take over the business, having the advantage of a cheap EUR at the moment. And they can deliver what the Swiss do as well.
So, this is a (small?) boom booster for Germany. Companies switching suppliers from Swiss to Germany will do this, in case they expect the exchange rates to stay for quite some time somehow like now. Switching suppliers is something you try to avoid, but do if necessary. But if you did it, you won't do it for a couple of years again... This whole production oriented export stuff is not a fast changing setup like in financial markets.
And let's state it the necessity to manage currency exchange topics is much higher for the Swiss than for the EU companies / people etc. It's to easy to work around them in the global market. Note: I'm living in Switzerland and I love this country and people, don't get me wrong here. But either playing with the big fish or waiting what happens while being with them, can become very dangerous for the small ones.
People here are now going crazy to buy in the EU because it's so cheap. Of course, and I'm wondering how many understand that by doing this, they are biting the hand that feeds them.
3
The cuckoo clock is not Swiss. Cuckoo clocks originate in the Black Forest region of Germany.
9
"But on Thursday the Swiss suddenly gave up. We don’t know exactly why; nobody I know believes the official explanation, that it’s a response to a weakening euro. But it seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive."
We actually do know (to a significant likelihood) exactly why. the SNB is quite small compared to the bazooka, the ECB is about to unleash on 1/22/15. Its like a hedge fund taking on the Fed. Who do you think is going to win?
We actually do know (to a significant likelihood) exactly why. the SNB is quite small compared to the bazooka, the ECB is about to unleash on 1/22/15. Its like a hedge fund taking on the Fed. Who do you think is going to win?
5
This is the danger of an economic system that has, as a goal, protecting and enabling the greedy instead of providing for a stable society that works for everyone.
5
Cuckoo clocks are not Swiss but rather German! Switzerland is famous for cheese, chocolate and watches and of course, banks.
5
This is just another example of putting business before people.
In the US, we saved the banks and AIG (who covered their bad bets with taxpayers' money) but left the people caught up in the bubble to fend for themselves. We didn't invest in infrastructure; something that is proven to work.
Switzerland seems to be telling us that their banks are worth more than their citizens' welfare or world stability.
In the US, we saved the banks and AIG (who covered their bad bets with taxpayers' money) but left the people caught up in the bubble to fend for themselves. We didn't invest in infrastructure; something that is proven to work.
Switzerland seems to be telling us that their banks are worth more than their citizens' welfare or world stability.
5
Krugman pens another indictment of capitalism, a complex, hyper-volatile economic system with cyclical booms and busts - the booms mostly benefiting the few, the busts clobbering the many who must also provide periodic massive intervention via the treasury, while sacrificing programs designed to help the many.
Capitalism has always given us "a looking-glass world": it enabled the accumulation of vast amounts of wealth by a tiny slice of the population, giving them the power to commandeer governments in order to further their own interests.
The biggest "looking-glass" characteristic of capitalism is the new definition it has given us for the word "democracy": the ability of the public to vote for either candidate A or candidate B of the capitalist class, neither of whom has the interests of the public at heart, except insofar as the public fits into plans for further wealth generation.
Please professor, keep telling us more about this "looking glass" system that we're all supposed to be so grateful for.
Capitalism has always given us "a looking-glass world": it enabled the accumulation of vast amounts of wealth by a tiny slice of the population, giving them the power to commandeer governments in order to further their own interests.
The biggest "looking-glass" characteristic of capitalism is the new definition it has given us for the word "democracy": the ability of the public to vote for either candidate A or candidate B of the capitalist class, neither of whom has the interests of the public at heart, except insofar as the public fits into plans for further wealth generation.
Please professor, keep telling us more about this "looking glass" system that we're all supposed to be so grateful for.
9
How negative would interest rates at the SNB fall before investors sought other currencies than the franc?
3
I assume Mr. Krugman's solution for the deflationary hammer poised above Japan's and Europe's economies is to provide even more government stimulus. How much stimulus needs to be spent on failed policies like QE before Mr. Krugman apologizes for his inaccurate economic advise. I don't think we should hold our breaths.
It is very clear now that massive central bank stimulus like QE is enormously helpful to the rich but hurts the average wage earner and saver. This in turn accelerates the income gap which is devestating for the overall economy. Enough is enough Mr. Krugman. Time for you to re-examine your beliefs about how government stimulus really effects the economy, especially those in the middle class.
It is very clear now that massive central bank stimulus like QE is enormously helpful to the rich but hurts the average wage earner and saver. This in turn accelerates the income gap which is devestating for the overall economy. Enough is enough Mr. Krugman. Time for you to re-examine your beliefs about how government stimulus really effects the economy, especially those in the middle class.
6
And we have to accept that it is the 'deflationary vortex now dragging down much of the world economy.' A tiny bit - after nearly every country now tries to deflate - or is it 'inflate' it's currency? - In order to be more competitive.
And then there are all these investors and speculators who just put their money where they get the highest returns and where they think their money is safe.
Which can become even a bigger problem for Switzerland. I mean if somebody would decide that the US is also a weaker haven, what would Switzerland do with all the Trillions which are out there?
Buying London?
And how will GDP be measured in the future if all the Billionaires move their money into Switzerland, London and NY? And with the amount of Russian and other Billionaires who not only buy residences at these places but also citizenships to these thre 'Zones' will the GDP a Russian Billionaire creates be counted for Russia or at one of his other residences - Perhaps the one in Geneva Switzerland and then the aggregate income in this Swiss city rises to
200 000$ per year.
Or will be such questions unanswerable?!
And then there are all these investors and speculators who just put their money where they get the highest returns and where they think their money is safe.
Which can become even a bigger problem for Switzerland. I mean if somebody would decide that the US is also a weaker haven, what would Switzerland do with all the Trillions which are out there?
Buying London?
And how will GDP be measured in the future if all the Billionaires move their money into Switzerland, London and NY? And with the amount of Russian and other Billionaires who not only buy residences at these places but also citizenships to these thre 'Zones' will the GDP a Russian Billionaire creates be counted for Russia or at one of his other residences - Perhaps the one in Geneva Switzerland and then the aggregate income in this Swiss city rises to
200 000$ per year.
Or will be such questions unanswerable?!
1
There is a massive inflation in asset prices because of the free loans the FED is providing to Wall Street banks. These free loans are making the Wall Street banks richer (at least on paper) and are costing American savers trillions of dollars as they earn nothing on their savings.
This is a wealth transfer from American people to a select few on Wall Street and their select few clients
This is a wealth transfer from American people to a select few on Wall Street and their select few clients
6
If anyone had told me 15 years ago that someday I'd be tuning in every day to read the thrilling narratives of an economist talking about the banking industry, I would have said they were nuts. But here I am.
3
"the Fed should start hiking very soon. But why? "
Short rates are below the inflation rate so Fed policy is specifically punishing retirees in favor of Citibank. Tbill rates should be about 2% which would not hurt anything.
Short rates are below the inflation rate so Fed policy is specifically punishing retirees in favor of Citibank. Tbill rates should be about 2% which would not hurt anything.
1
The only reason the economy seems to have happy feet now, when it did not (as much) a year ago seems to be oil prices. When it is no longer in our interest to collude with Saudi Arabia on this and the Saudis continue keeping prices down below our minimum needed to keep fracking, we may not be so happy. We're going to lose some of our oil independence in an effort to keep Russia out of the Ukraine.
3
(I'm not a student of economics --- I would just like to understand)
But I would guess they are ending the peg program as a result of Germany having learned its lesson about austerity? I doubt Switzerland needs or wants more euros to contend with. What don't I understand?
But I would guess they are ending the peg program as a result of Germany having learned its lesson about austerity? I doubt Switzerland needs or wants more euros to contend with. What don't I understand?
The Swiss are paying the price for hitching their wagon to one of the worst ideas in the last 50 years, the European Union.
3
-0.75%? I'm ready to refinance the mortgage again.
23
With declining currency values now becoming a long term trend, can another "Long Term Capital Asset Management" bust be far behind?
1
You write, "it seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive." Isn't this the same as saying that speculators were betting that the SNB would have to drop the policy? And wasn't the policy from the beginning doomed to fail?
1
Zero interest rate policy simply makes lending pointless. That is why it is so effective at stagnating money.
Not his best piece, but let's face it, foreign trade and exchange rate policy is fairly complex. Best way to look at it, because the Swiss had their own currency and used fairly conservative monetary policy hot money flowed in, and in, and in. Swiss franc kept appreciating. They tired to force it down by selling francs for Euros. Didn't work, euro a piece of crap. Sell more, still wall paper, hot money still in. Finally no more buying Euros, but now the hot money gets charged for their perceived save haven. Complicated yes, a total mess no.
4
Ho-hum.
I guess this just shows that you can't have a hyperglobalized economy with money circling the globe a thousand times per second in desperate search for good risks (bubbling wherever it chooses to concentrate), while relaying on fractured, localized government to deal with the tensions arising, inevitably, from this unbalanced situation.
We should perhaps realize that we are not so much witnessing the folly of this or that government in a small, european country, but the very crumbling of globalization 2.0, a trade system emanating from the United States, which remains it's cornerstone and theoretically the only nation capable of unilaterally reforming the rules of the game without destroying it. Alas, that probably won't happen, for ideological reasons.
Unfortunately, as long as the eurozone remains a dysfunctional attempt to gain critical mass, the single nations of Europe (in or outside the EU) are in no position to amend the rules by themselves.
I guess this just shows that you can't have a hyperglobalized economy with money circling the globe a thousand times per second in desperate search for good risks (bubbling wherever it chooses to concentrate), while relaying on fractured, localized government to deal with the tensions arising, inevitably, from this unbalanced situation.
We should perhaps realize that we are not so much witnessing the folly of this or that government in a small, european country, but the very crumbling of globalization 2.0, a trade system emanating from the United States, which remains it's cornerstone and theoretically the only nation capable of unilaterally reforming the rules of the game without destroying it. Alas, that probably won't happen, for ideological reasons.
Unfortunately, as long as the eurozone remains a dysfunctional attempt to gain critical mass, the single nations of Europe (in or outside the EU) are in no position to amend the rules by themselves.
3
Swiss exports are now about 15% more expensive, but imports to Switzerland cost 15% less. Hard to see how this is necessarily a "big mistake," especially if there was no obvious good policy alternative.
Cuckoo clocks come from the Black Forest region of Germany, not Switzerland.
Otherwise, an informative piece.
Cuckoo clocks come from the Black Forest region of Germany, not Switzerland.
Otherwise, an informative piece.
2
Deflationary vortex, where? Not at the grocery store or clothing stores. And the new car I'm looking at, big bucks. Yes I did pay $1.89 for gas but that's the only deflation I've seen and that's a shill.
2
Dr Krugman will you please stop obsessing over deflation. When I was growing up in the aftermath of ww2 my parents anguished over continued price rises (inflation). By my analysis the key reason inflation has become the accepted norm is through the efficiencies brought on by technology. This has allowed the real cost of goods to fall, even though real wages struggle to keep up. So please let us not panic over the Swiss aberration.
The Swiss have played a silly game of controlling the exchange rate with the Euro to appear to have a stable currency. They have now been hit doubly with a weak Euro and a set of Russians seeking a safe haven away from the rouble. I think they have found it simply impossible to control the currency under this double onslaught and have decided to get out of the Euro control game come “hell or high water.” But I am sure that the Swiss Bankers will make their bonuses as they crawl out of the mess they have created.
The Swiss have played a silly game of controlling the exchange rate with the Euro to appear to have a stable currency. They have now been hit doubly with a weak Euro and a set of Russians seeking a safe haven away from the rouble. I think they have found it simply impossible to control the currency under this double onslaught and have decided to get out of the Euro control game come “hell or high water.” But I am sure that the Swiss Bankers will make their bonuses as they crawl out of the mess they have created.
6
So Dr. Krugman is writing about the same topic from a substantially different vantage point. It appears that the financial ship of states had better push the throttle to maximum, full speed ahead in order to just skim around the (deflationary) black hole's event horizon. Thus it not only accelerates us much faster, but very far away from the financial "Hotel California", if it's not already too late.
2
I was paid in Swiss francs for 15 years while living in nearby France, and during that time the euro first soared to 1.70 then crashed briefly to parity with the franc; the former cost us $1000 a month, thank goodness our mortgage was in francs, so no fluctuation there
... until 2011, it was rumoured that the Swiss National Bank had bought the "equivalent of 600 Airbuses " in euros to prop it up and keep the franc down; worked for a while, but adieu stability
... until 2011, it was rumoured that the Swiss National Bank had bought the "equivalent of 600 Airbuses " in euros to prop it up and keep the franc down; worked for a while, but adieu stability
3
And who will alert the media? Since our vaunted 4th Estate has been sleeping on the job the last 30 years our people have no idea what republican politics and politicians have done to them and their way of life. So they vote for the sound bites and the messages paid for by the fascists and oligarchs.
And as a result, the U.S.A. just circles the drain.
And as a result, the U.S.A. just circles the drain.
9
Dr. Krugman wrote: "So Swiss monetary officials went all out in an effort to weaken their currency. You might think that making your currency worth less is easy — can’t you just print more bills? — but in the post-crisis world it’s not easy at all. Just printing money and stuffing it into the banks does nothing; it just sits there. " That just reminded me: Hasn't the U.S. been doing that ?
With all the QE , they've been in effect stuffing money into banks where it sits. So why can't the banks loan it out?
Then Dr. Krugman again says inflation is good. That while oil prices keep sinking. Airlines refused to lower their prices even though costs for fuel, which account for perhaps almost 2/3 total costs, have gone down by half. Did the idea we need inflation make them keep prices up, to conform with the zeal for inflation advocated by Dr. Krugman? Mr. Keanes, of Keynesian theory, might not agree.
Plus, who really cares anymore about all the people who have lower income, despite higher prices, or no job at all and dependent on welfare?
Prices for food and costs of rent go up many places, while food stamps are being cut.
It would be so unnecessary for the government to be cutting welfare, or even thinking about doing that, if we had prices more commensurate with wage levels, and fewer jobless. Do the liberals like it when they keep having this as excuse to club the Republicans over the head because they urge a saner fiscal policy, a saner Fed policy?
With all the QE , they've been in effect stuffing money into banks where it sits. So why can't the banks loan it out?
Then Dr. Krugman again says inflation is good. That while oil prices keep sinking. Airlines refused to lower their prices even though costs for fuel, which account for perhaps almost 2/3 total costs, have gone down by half. Did the idea we need inflation make them keep prices up, to conform with the zeal for inflation advocated by Dr. Krugman? Mr. Keanes, of Keynesian theory, might not agree.
Plus, who really cares anymore about all the people who have lower income, despite higher prices, or no job at all and dependent on welfare?
Prices for food and costs of rent go up many places, while food stamps are being cut.
It would be so unnecessary for the government to be cutting welfare, or even thinking about doing that, if we had prices more commensurate with wage levels, and fewer jobless. Do the liberals like it when they keep having this as excuse to club the Republicans over the head because they urge a saner fiscal policy, a saner Fed policy?
1
We don't need "fiscal stimulus" from the government, we need fiscal stimulus from the private sector. The government's stimulus is just more borrowed or printed money (or money taken away from the people in the form of taxation), and how has that been working out? This government has borrowed and printed more money over the past 6 years than ever before in human history, and we are teetering on the brink of recession once again. The Fed propped up the stock market while the increased costs of Obamacare and President Obama's regulatory assault from his executive branch agencies have slit the throat of every business in America. And we wonder why our "recovery" is non-existent!
Deflation is the result of a gigantic government suffocating economic activity which depresses employment, depresses demand for labor, depresses wages, depresses spending, depresses monetary velocity and creates a country full of more and more tax consumers and fewer and fewer tax payers.
The Swiss know that there is no way to win by watching your currency plummet. Their exports will become more expensive, but they'll also be able to use their Swiss Francs to buy up the world at a discount.
In the end, when the Euro, Yen and Dollar collapse in value and we're all buying a loaf of bread with a wheel-barrow full of worthless paper, the Swiss will be just fine.
And they know it.
Deflation is the result of a gigantic government suffocating economic activity which depresses employment, depresses demand for labor, depresses wages, depresses spending, depresses monetary velocity and creates a country full of more and more tax consumers and fewer and fewer tax payers.
The Swiss know that there is no way to win by watching your currency plummet. Their exports will become more expensive, but they'll also be able to use their Swiss Francs to buy up the world at a discount.
In the end, when the Euro, Yen and Dollar collapse in value and we're all buying a loaf of bread with a wheel-barrow full of worthless paper, the Swiss will be just fine.
And they know it.
5
Mr. Krugman misses the point. It is the expectation of deflation that has a lot of negative side effects - not deflation itself. So when the Swiss manage to rise their exchange rate 30% without any period in which there was expectation of such a move they have made some very smart moves.
Of course now there is no way back and they will need to find other ways for expectation management.
Of course now there is no way back and they will need to find other ways for expectation management.
The difference between academic economics and market economics is exemplified by Dr K's statement that the Swiss made a mistake in deciding to stop buying euros to prop up the Swiss franc. Mathematically perhaps, quite correct: but they don't have an infinite pot of money to buy euros with. So somewhere there must exist an end point. What should that end point have been, Dr K?
What makes economics such a dismal science is its inability to understand that economies are built by fallible, political people. Not rational actors, not central banks with infinitely deep pockets and no political matters. Pick your poison, Keynes or Friedman, but don't kid yourself that these are anything but simplistic models.
What makes economics such a dismal science is its inability to understand that economies are built by fallible, political people. Not rational actors, not central banks with infinitely deep pockets and no political matters. Pick your poison, Keynes or Friedman, but don't kid yourself that these are anything but simplistic models.
2
OK, I'm a big Krugman fan, but how about the following thought-experiment:
In an era when it is critical that we reduce our consumption of natural resources, is economic contraction a bad thing?
A progressive tax on consumption would also limit economic growth - but is that really such a bad thing?
Krugman has touched upon the issue of economic growth not being destructive before, but it would be interesting to see him develop this topic at length, to debate the green argument for deflation.
In an era when it is critical that we reduce our consumption of natural resources, is economic contraction a bad thing?
A progressive tax on consumption would also limit economic growth - but is that really such a bad thing?
Krugman has touched upon the issue of economic growth not being destructive before, but it would be interesting to see him develop this topic at length, to debate the green argument for deflation.
Any Sovereign Nation's freshly printed paper currency, Treasury Bonds, or any electronic credits, Monopoly Money, Bitcoins, and/or even a silly new Sovereign Nation platinum coin made out of a few hundred dollars of Platinum and printed (minted) with "One Trillion US Dollars" on the face has little or NO VALUE unless it can be exchanged for something of value.
Any and every currency has to be redeemable for something of value, or it loses all of its value.
The US Dollar is now redeemable primarily for title to existing privately owned US located properties, commodities, businesses and other real property assets created by previous US generations instead of Gold from the US Treasury.
Any and every currency has to be redeemable for something of value, or it loses all of its value.
The US Dollar is now redeemable primarily for title to existing privately owned US located properties, commodities, businesses and other real property assets created by previous US generations instead of Gold from the US Treasury.
2
It is far from clear that deflation has to be feared, as many commentators state:
Between 2003 and 2009,when the average inflation of Japan was 0.00% , its GDP per capita for Japan increased by 26.4%.
Over the same period, the average inflation in the US was 2.03 %, and its GDP per capita 23.2%
There is widespread misunderstanding about the economy of Japan, stemming from the fact that many economists, including the columnist, ignore demographic changes. The population of Japan is falling, the population of the US is increasing.
When you divide a pie by into fewer slices, each slice gets larger, and vice versa.
Between 2003 and 2009,when the average inflation of Japan was 0.00% , its GDP per capita for Japan increased by 26.4%.
Over the same period, the average inflation in the US was 2.03 %, and its GDP per capita 23.2%
There is widespread misunderstanding about the economy of Japan, stemming from the fact that many economists, including the columnist, ignore demographic changes. The population of Japan is falling, the population of the US is increasing.
When you divide a pie by into fewer slices, each slice gets larger, and vice versa.
2
Dr. Krugman's explanation of the Swiss franc devaluation does answer the question, "how does classical monetary theory explain what happened?" But he ignores the role that a dramatic worldwide increase in economic inequality, led by the United States, plays in accelerating deflation. The reason there's low demand for Swiss products isn't that Swiss currency is overvalued. It's that fewer and fewer people have money to buy them.
4
I still don't understand why Republicans seem to feel that this government, in this financial environment, shouldn't start on infrastructure projects. I still don't understand why Democrats, since the start of the banking crisis, haven't been working the nation into a lather pushing infrastructure repair, maintenance, extension.
I live out in a desert, in a state where Republicans have had full control for maybe 30 years. Starting in, I think, 2009, they began a massive rebuild of the I-15 corridor in Utah County, once primarily farmland (as Simi Valley was once mainly orchards), but now primarily suburban sprawl. They finished under deadline and under budget, partly because the state could borrow at low rates, and partly because they planned and built smartly.
Now these mutant Republicans are considering raising the state gas tax to further maintain our road system. And both Salt Lake and Utah valleys are being served by a relatively sophisticated and growing rapid-transit system, the Utah Transit Authority.
Don't get me wrong. These are Republicans, and many of them resent the cost of the rapid and mass transit system. Many of them still don't want to raise taxes. But when I ride the Front-Runner train into Salt Lake City, and I see that it is traveling faster than the traffic on the freeway, when it isn't slowing down for and speeding up after a stop -- it stops for about a minute at each station -- I am the future, staring into the past.
I live out in a desert, in a state where Republicans have had full control for maybe 30 years. Starting in, I think, 2009, they began a massive rebuild of the I-15 corridor in Utah County, once primarily farmland (as Simi Valley was once mainly orchards), but now primarily suburban sprawl. They finished under deadline and under budget, partly because the state could borrow at low rates, and partly because they planned and built smartly.
Now these mutant Republicans are considering raising the state gas tax to further maintain our road system. And both Salt Lake and Utah valleys are being served by a relatively sophisticated and growing rapid-transit system, the Utah Transit Authority.
Don't get me wrong. These are Republicans, and many of them resent the cost of the rapid and mass transit system. Many of them still don't want to raise taxes. But when I ride the Front-Runner train into Salt Lake City, and I see that it is traveling faster than the traffic on the freeway, when it isn't slowing down for and speeding up after a stop -- it stops for about a minute at each station -- I am the future, staring into the past.
11
Meanwhile, the Washington Post reports today that 51%, or over half, of the students in K-12 public schools in the US now live in poverty. It's official.
2
No inflation? Krugman has obviously not been to a grocery store lately. Or paid for healthcare services, which have skyrocketed as the costs of Obamacare kick in. Or paid his property taxes, which continue to rise inexorably to cover bloated civil service and teacher pensions, which dwarf pensions received by those of us in the private sector. That is, if private sector workers are lucky enough to have a pension. Come on man, you need to get out into the real world which the rest of us inhabit.
5
We are in a deflationary cycle per yesterday's release of PPI stats. Yes, even food and foodstuffs were deflationary in the second half of 2014. Healthcare showed an increase but was also moderating. Commodities are in a accelerated downward spiral due to rampant speculation, loss of demand in China and an oversupply by commodity producers.
http://www.bls.gov/ppi/ppidr201412.pdf
http://www.bls.gov/ppi/ppidr201412.pdf
1
The article is about monetary policy, not fiscal policy. I share many of your grievances about the imbalance between public and private sector pensions and rising property taxes - I am a pensioner. The problem started with reagan and continued through Clinton. The free movement of capital internationally and the globalization of production, not to mention the deregulation of the financial sector and the reduction of income taxes on the wealthy. Dr. Krugman is correct in this case: overall inflation, measured by the CPI is very low in the US, UK, EU and Japan. If you think deflation is a joke, read the economic history of the 1930s, whether written by "liberal" or "conservative" economists and historians. Deflation not cause by rapid increases in productivity means falling production, lower employment and incomes and increased burden arising from any debt you have, e.g., mortgages, car payments, credit lines or cards. It's good to look at reality, as long as it is not limited to the purely personal perspective.
2
The Swiss came to their senses and realized they didn't want to have their currency tied to European peso that was bound to continue devaluing and giving a negative return for years on end.
Historically, the Swiss have generated a very high standard of living, low unemployment, and a strong export base by practicing the kinds of things Keynesians hate. You know, low debt, balanced budgets, a strong currency. I submit their track record is a helluva lot better than that of Keynesians.
Historically, the Swiss have generated a very high standard of living, low unemployment, and a strong export base by practicing the kinds of things Keynesians hate. You know, low debt, balanced budgets, a strong currency. I submit their track record is a helluva lot better than that of Keynesians.
6
Why cannot each and every US citizen get their income from some government agency payroll or government contract, at maybe double the minimum wage scale to create income equality?
Where does all of that "Free Government Money" come from?
Only private businesses wealth creation activity creates new taxable wealth, and that new and existing privately owned taxable wealth is the primary source of funds to be confiscated by governments through taxes to pay for any and all government activities.
Government expenditures only consume a nation's wealth and does not create any new taxable wealth that can be taxed to support and pay for government activities.
Government Contracts to private businesses to create infrastructure, weapons, social programs are also paid for by the taxpayers and do not create national wealth, but those activities just consume national wealth that was created by other citizens who created new national wealth that was confiscated to pay for those government activities!
Where does all of that "Free Government Money" come from?
Only private businesses wealth creation activity creates new taxable wealth, and that new and existing privately owned taxable wealth is the primary source of funds to be confiscated by governments through taxes to pay for any and all government activities.
Government expenditures only consume a nation's wealth and does not create any new taxable wealth that can be taxed to support and pay for government activities.
Government Contracts to private businesses to create infrastructure, weapons, social programs are also paid for by the taxpayers and do not create national wealth, but those activities just consume national wealth that was created by other citizens who created new national wealth that was confiscated to pay for those government activities!
4
You have no idea, do you? Government always steers the economy. When did the private sector decide to build the Interstate Highway system for transportation? How about the Space Program called NASA back in the early 1960s? How about the cyberspace that we are currently communicating in? All these projects were first created by, wait for it, the United States Government. The private sector then and only then gets the contracts but more importantly hires people who pay taxes. In fact for every $1 the government pays out for say, unemployment benefits, it gets back something in the neighborhood of $1.27. It's even more for welfare. We are getting brainwashed daily by the Horrible Debt Boogeyman and so nothing comes out of the Republican dominated, manipulating Congress to spend necessary stimulus money on our aged out, decaying infrastructure.
Does anyone think that the 'private sector' is going to suddenly decide to, all on its own to start rebuilding the bridges, the potholes, the roads, the schools, the cities, the needs for an advanced rail system, or anything for that matter?
Does anyone think that the 'private sector' is going to suddenly decide to, all on its own to start rebuilding the bridges, the potholes, the roads, the schools, the cities, the needs for an advanced rail system, or anything for that matter?
3
C Coffey,
Before industrialization, there was not enough wealth available for the government to confiscate for the government to be able to pay to construct very much infrastructure, or to conduct very many wars.
Which came first, the chicken or the egg? (industry or tax paid public infrastructure)
Industry came first because without the wealth created by industry there would not be any wealth available to be confiscated by the government to create public infrastructure!
Even the early "company towns" had company provided infrastructure to support their workers.
Public funded infrastructure WAS NOT an essential part of the foundation to the creation of national wealth through industrialization.
During the industrialization period of the USA, private companies created their own company towns with conditions for workers similar to the conditions for workers in Bangladesh without any tax funded infrastructure support.
The company towns had only as much of their own infrastructure systems as they needed to support their industrial business and their employees.
These companies also printed their own paper company currency, which was only redeemable for rent in the company houses and for products at the company store.
The workers probably also used this currency for business and trade between themselves for various items that the worker's families produced and sold to each other.
Before industrialization, there was not enough wealth available for the government to confiscate for the government to be able to pay to construct very much infrastructure, or to conduct very many wars.
Which came first, the chicken or the egg? (industry or tax paid public infrastructure)
Industry came first because without the wealth created by industry there would not be any wealth available to be confiscated by the government to create public infrastructure!
Even the early "company towns" had company provided infrastructure to support their workers.
Public funded infrastructure WAS NOT an essential part of the foundation to the creation of national wealth through industrialization.
During the industrialization period of the USA, private companies created their own company towns with conditions for workers similar to the conditions for workers in Bangladesh without any tax funded infrastructure support.
The company towns had only as much of their own infrastructure systems as they needed to support their industrial business and their employees.
These companies also printed their own paper company currency, which was only redeemable for rent in the company houses and for products at the company store.
The workers probably also used this currency for business and trade between themselves for various items that the worker's families produced and sold to each other.
3
The 'economics' underlying your assertions are insane. You ohonestly believe every $1.00 spent on welfare returns MORE than $1.27 to the economy?? Seriously? If that were true we should issue every man woman and child in America a check for $1 billion. We'd all be rich!
FWIW, It is only recently that government has taken over the role of providing infrastructure. The 'private sector' built thousands of miles of railroads and pipelines. The 'government' has a hard time building a simple subway line of a few miles.
FWIW, It is only recently that government has taken over the role of providing infrastructure. The 'private sector' built thousands of miles of railroads and pipelines. The 'government' has a hard time building a simple subway line of a few miles.
1
What has happened to the Swiss Franc would also have happened to the German Mark, if it still existed, But of course that's the irony, with the DMark and without the Euro, we wouldn't be in this mess. This also points to the hypocrisy of Germany's policy of fiscal tightening and blocking QE. Such ideologically driven perverse policy may satisfy the German electorate but is creating misery throughout Europe.
3
One of the reasons we should be worrying now is that historically by the time central banks and their Government masters start taking action, the crisis has already started. Individuals may see the issues and risks now but by the time that foresight wends its way through the halls of power it is usually too late.
2
Once again, we here from Dr. Krugman on the ills of an economy.
I think we should all remember that Dr. Krugman has never in his career been responsible for managing an economy, or, for that matter, anything more successful than, say, Enron, on the board of which Dr. Krugman sat.
His thinking, like that of most economists, must be taken with a healthy grain or thousand of salt.
I think we should all remember that Dr. Krugman has never in his career been responsible for managing an economy, or, for that matter, anything more successful than, say, Enron, on the board of which Dr. Krugman sat.
His thinking, like that of most economists, must be taken with a healthy grain or thousand of salt.
4
Unfortunately, Dr Krugman takes the wrong message away from this fiasco. This situation reveals the insanity of central banks trying to manipulate currencies. At some point market forces will always win out. The greater the manipulation, the greater the correction. Wait until the piper has to be paid here in the states..
3
From todays NY Times
"..investors fled to perceived havens like German government debt. Swiss government bonds, also a haven in times of turmoil,rose sharply in price"
Maybe the confidence fairy isn't a fairy after all.
"..investors fled to perceived havens like German government debt. Swiss government bonds, also a haven in times of turmoil,rose sharply in price"
Maybe the confidence fairy isn't a fairy after all.
4
I wonder if the bogeyman of "inflation" is just an excuse to keep the economy weak to paint Obama as incapable of leading the economy, which will make it more likely a Republican will take the White House in 2016.
It seemed to work for the congressional elections in 2014.
Otherwise, why focus on inflation in the absence of data showing inflation at or above target levels?
It seemed to work for the congressional elections in 2014.
Otherwise, why focus on inflation in the absence of data showing inflation at or above target levels?
13
We entered a "looking glass world" when the Fed started the QE programs. It took the ending of those programs to re-ignite economic growth in the U.S.. Maybe central bankers should stick to providing liquidity at critical periods and controlling inflation, and stay out of attempting to use monetary policy to effect fiscal remedies.
1
Dear Mr. Krugman,
I admire you for your scientific work, but your opinions in your blog and the analyses often seem more driven by the outcome you want to find than actual facts.
I am no economist and cannot judge the scientific details, but analysing the actions of the SNB without even mentioning the role of the planned quantitative easing of the ECB seems rather odd. These days, you seem to like to see everything from the perspective of deflation, but when you hear hoofbeats think horses, not zebras.
Maybe the move of the SNB can be simply explained by the efforts of the ECB to weaken the Euro against other currencies?
I admire you for your scientific work, but your opinions in your blog and the analyses often seem more driven by the outcome you want to find than actual facts.
I am no economist and cannot judge the scientific details, but analysing the actions of the SNB without even mentioning the role of the planned quantitative easing of the ECB seems rather odd. These days, you seem to like to see everything from the perspective of deflation, but when you hear hoofbeats think horses, not zebras.
Maybe the move of the SNB can be simply explained by the efforts of the ECB to weaken the Euro against other currencies?
27
"Maybe the move of the SNB can be simply explained by the efforts of the ECB to weaken the Euro against other currencies?"
If this is the case, then keeping the peg would mean the Swiss gets devalued more, which is the REASON they had the peg in the first place, right?
Devaluing their currency to create inflation when they are in the throes of deflation makes sense. Now, they did 2 things seemingly at odds with each other. Negative interest rates will lead to more spending but removing the peg cancels out that move.
If this is the case, then keeping the peg would mean the Swiss gets devalued more, which is the REASON they had the peg in the first place, right?
Devaluing their currency to create inflation when they are in the throes of deflation makes sense. Now, they did 2 things seemingly at odds with each other. Negative interest rates will lead to more spending but removing the peg cancels out that move.
In reply to HH of Switzerland. Sorry to sound negative, but this is an extremely important issue. You admit that you are no economist and you admit that Dr. Krugman has done excellent scientific work. However, upon reading "all but the details" of his report, you feel competent to accuse him of gross scientific misconduct, by manipulating the facts to support a false but convenient conclusion.
Your comment about horses and zebras was interesting, but the "details" you skipped included a lot of data showing that right now we are in a region where zebras are much more common than horses.
Also, suppose you are wrong and Dr. Krugman's concerns are valid. If your views prevail politically, you would be dooming Switzerland to 20 or more years of relative impoverishment.
Your comment about horses and zebras was interesting, but the "details" you skipped included a lot of data showing that right now we are in a region where zebras are much more common than horses.
Also, suppose you are wrong and Dr. Krugman's concerns are valid. If your views prevail politically, you would be dooming Switzerland to 20 or more years of relative impoverishment.
2
Who ever said that Economics is a science?
Is Political Science really a science?
Is Political Science really a science?
2
Prof. Krugman wrote: "What you need to understand is that all the usual rules of economic policy changed when financial crisis struck in 2008; we entered a looking-glass world, and we still haven’t emerged."
Many ideas as to what can help, were reversed from previous ideas.
Austerity became a wrong thing. Normal interest rates became wrong.
But they never reversed on some other things. Like the idea that deflation is always bad. Isn't it instead a bad thing when entering such a 'looking-glass world' ... the govt's people can pick and choose what's considered bad or good, for the economy ?
And just because the rich have become steadily richer, and at the expense of actual standard of living, and for people below 90-99% level, even having any job at all, ... we could infer they have been picking and choosing ... and not helping in the process.
A reappraisal of what's right ... is sorely needed.
As for them changing to a -0.75 NEGATIVE interest rate in Switzerland, on deposits, this is actually what is needed if there IS deflation), even if they do it to fight deflation. Does Prof. Krugman know the real thinking behind this 'shocking' move?
But then that extra money banks get, should be applied to REDUCE the principals on loans. If they do that too, then people wouldn't be so apt to delay buying ...because they think they can buy later at a lower price. Deflation wouldn't have to be detrimental to a well-operating economy.
We need new tactics like that here too.
Many ideas as to what can help, were reversed from previous ideas.
Austerity became a wrong thing. Normal interest rates became wrong.
But they never reversed on some other things. Like the idea that deflation is always bad. Isn't it instead a bad thing when entering such a 'looking-glass world' ... the govt's people can pick and choose what's considered bad or good, for the economy ?
And just because the rich have become steadily richer, and at the expense of actual standard of living, and for people below 90-99% level, even having any job at all, ... we could infer they have been picking and choosing ... and not helping in the process.
A reappraisal of what's right ... is sorely needed.
As for them changing to a -0.75 NEGATIVE interest rate in Switzerland, on deposits, this is actually what is needed if there IS deflation), even if they do it to fight deflation. Does Prof. Krugman know the real thinking behind this 'shocking' move?
But then that extra money banks get, should be applied to REDUCE the principals on loans. If they do that too, then people wouldn't be so apt to delay buying ...because they think they can buy later at a lower price. Deflation wouldn't have to be detrimental to a well-operating economy.
We need new tactics like that here too.
2
I understand how serious the situation is, but I am amused that people with obsessive greed disorder are so paranoid that they put their money where it can't feed their greed.
Let's learn from the Swiss indeed: they've capitalized on people's greed for a long time and now that beast is eating them alive.
Let's learn from the Swiss indeed: they've capitalized on people's greed for a long time and now that beast is eating them alive.
10
Bank Deposits denominated in Euros deposited in EU banks will lose more buying power than if the depositors buy Swiss Francs and deposit those Swiss Francs in Swiss Bank Accounts denominated in Swiss Francs.
1
Krugman's column is the only one I make sure to read every time it appears. We can't expect all Republicans to read his column, but most Democrats should, especially those who speak on radio and TV and those who write for the print media. Sadly, many of these celebrities say over and over that the federal debt and inflation are huge problems. Krugman should be required reading for talking heads.
17
How many investors/traders got wiped out by the instant 20% revaluation of the Swiss Franc today?
1
Doesn't more economic activity mean relatively more CO2 output? Perhaps we need to reconfigure all of our values.
2
It doesn't have to! Look up the organization 'Architecture 2030' and the American Council for an Energy Efficient Economy (ACEEE).
1
You give up your heating, air conditioning, travel, plastic products, paper products, electricity, etc., I want to keep mine!
1
Two strikes against us. Deflationary expectations already deeply ingrained and cpi print probably won't help. Fed has made clear it's in tightening mode, though I have no idea why
1
Inflation means that local retail prices denominated in that local currency are rising, which means that the local currency buying power is diminishing!
Price inflation = Currency devaluing (sort of)
Price inflation = Currency devaluing (sort of)
1
If your family (or your nation) makes widgets, then your family must make and then sell enough widgets to others outside of your family so that your family can accumulate enough profit and wealth to enable them to buy other things that your family needs from others that produce those other things.
Then hopefully you will then have enough left over to accumulate more wealth for any future emergencies.
Or you can live on credit cards until the lenders of real wealth stop increasing your credit limit.
Or a nation can print and sell sovereign treasury bonds and spend the proceeds on government activities.
Nations can obligate future generations to repay their national debts (Sovereign Treasury Bonds) after current citizens have their federal government spend all of this "borrowed money" on themselves.
President Obama apparently believes that there is no limit to the amount of wealth that the public sector can confiscate from the wealth-producing private sector in the USA and also borrow more wealth from industrious individuals in the wealth creating BRIC nations in order to fund wealth-consuming US government activities.
Then hopefully you will then have enough left over to accumulate more wealth for any future emergencies.
Or you can live on credit cards until the lenders of real wealth stop increasing your credit limit.
Or a nation can print and sell sovereign treasury bonds and spend the proceeds on government activities.
Nations can obligate future generations to repay their national debts (Sovereign Treasury Bonds) after current citizens have their federal government spend all of this "borrowed money" on themselves.
President Obama apparently believes that there is no limit to the amount of wealth that the public sector can confiscate from the wealth-producing private sector in the USA and also borrow more wealth from industrious individuals in the wealth creating BRIC nations in order to fund wealth-consuming US government activities.
1
I read elsewhere that the Swiss revalued the Franc now because the ECB (European Central Bank) is going to do something next week where Swiss banks would have otherwise lost money and they will now be wallowing in profit. The Swiss had a chance to do their adjustment more slowly and in the open but they chose to do it suddenly with no warning. It was done for no one's good but the Swiss banks' own, despite higher-sounding aims, and in the way that would get them the fattest, fastest profit, even at the risk of destroying the Swiss economy, and perhaps the world economy. This completely manufactured event became a flash crash that destroyed hundreds of billions of dollars of assets worldwide. The tally could make informative reading in a future NYTimes article. The Swiss have already learned from us: banksters go unpunished. But doesn't this wanton savaging of the world economy qualify as terrorism? Isn't this as serious as any other survival threat faced by western civilization and something that would sound a lot worse to us if we thought outsiders rather than insiders had done it?
4
It gets complicated. The U.S., though pretty sound at the moment, cannot remain immune to others' folly for ever. What are we to do? If saving does not allow one to keep up with inflation (and the Swiss' move definitely cuts into your capital, if you've got your money there), it may be foolish not to try to invest elsewhere. But when volatility comes 'flying', any advice for future gains is fraught with danger, given that 'chance' reigns supreme; and if accurate, it is by sheer luck only. I guess I'll just stay put in a well diversified portfolio, and hope not to be around when, or if, it dries up.
Who wants to bet that this is by no means the last "shock" to come along?
We're nowhere near the middle of this novel yet. It's a thick one.
We're nowhere near the middle of this novel yet. It's a thick one.
3
Dr. Krugman, you are a great economist. However, I do not need a Nobel Prize for my economic philosophy, just do the opposite of the Republicans!
4
The Swiss National Bank's behavior provides a fine example addressing what appears to be a simple question: Why is it so difficult to fight "the deflationary forces that are now afflicting much of the world"?
But to answer the question, we have to look to psychology and psychopathology, not economics. Why psychopathology?
Because in order to further enhance the wealth of a few, self-serving decisions and actions were and are being made that are deviant and devious, which have promoted (rather than tried to reduce) social dysfunction and have caused unnecessary harm to entire societies, millions of people, and the environment.
A few signs of psychopathology:
Is consciously out of touch with reality: Reality was and is not only being ignored but distorted. The fundamentals of what to do in such a situation of economic crisis have been well established in economics, but it was decided that fundamentals as well as contrary evidence and data were to be rejected and scorned to please and placate a very small number of wealthy and powerful individuals, corporations, and elitist groups. The means to achieve this end depended on a promoting false rationale and lies in order to manipulate public opinion.
Refuses to be held accountable, admit error or wrongdoing, and does harm: The choice was/is made to engage in selfish immature, and destructive actions, rather than take responsible, mature moral actions that stimulate the economy & reduce the likelihood of economic crisis
But to answer the question, we have to look to psychology and psychopathology, not economics. Why psychopathology?
Because in order to further enhance the wealth of a few, self-serving decisions and actions were and are being made that are deviant and devious, which have promoted (rather than tried to reduce) social dysfunction and have caused unnecessary harm to entire societies, millions of people, and the environment.
A few signs of psychopathology:
Is consciously out of touch with reality: Reality was and is not only being ignored but distorted. The fundamentals of what to do in such a situation of economic crisis have been well established in economics, but it was decided that fundamentals as well as contrary evidence and data were to be rejected and scorned to please and placate a very small number of wealthy and powerful individuals, corporations, and elitist groups. The means to achieve this end depended on a promoting false rationale and lies in order to manipulate public opinion.
Refuses to be held accountable, admit error or wrongdoing, and does harm: The choice was/is made to engage in selfish immature, and destructive actions, rather than take responsible, mature moral actions that stimulate the economy & reduce the likelihood of economic crisis
16
Central banker's friends cash in by front-running the policy shifts they hear about in advance.
2
Markets are full of surprises, no?
The best laid plans of mice and central bankers oft go awry.
Note the way the Swiss currency reset. The policy looked okay on the surface of the charts for three years, then, in about an hour, it all reversed.
That's what happens when you manipulate markets and temporarily neutralize their price discovery function. Economic reality does not change because you've gamed the monetary metrics.
You cannot cure a fever by manipulating the scale on the thermometer, so to speak.
Fair warning to America's stock and bond holders.
Zero rates are mathematically unsound and unsustainable. When the zirp/qe policy unwinds, it is unlikely to happen gently.
The best laid plans of mice and central bankers oft go awry.
Note the way the Swiss currency reset. The policy looked okay on the surface of the charts for three years, then, in about an hour, it all reversed.
That's what happens when you manipulate markets and temporarily neutralize their price discovery function. Economic reality does not change because you've gamed the monetary metrics.
You cannot cure a fever by manipulating the scale on the thermometer, so to speak.
Fair warning to America's stock and bond holders.
Zero rates are mathematically unsound and unsustainable. When the zirp/qe policy unwinds, it is unlikely to happen gently.
6
"Zero rates are mathematically unsound and unsustainable. When the zirp/qe policy unwinds, it is unlikely to happen gently."
Congrats, you've identified the challenge. The whole point of the policies though is to avert a depression. So, I'll take a rougher ride for little while in order to avoid that disaster. The idea that always letting the markets discover the price (and, hence, collapse when appropriate) takes an immense amount of faith that people will be willing and able to rebuild afterwords.
Congrats, you've identified the challenge. The whole point of the policies though is to avert a depression. So, I'll take a rougher ride for little while in order to avoid that disaster. The idea that always letting the markets discover the price (and, hence, collapse when appropriate) takes an immense amount of faith that people will be willing and able to rebuild afterwords.
1
taopraxis
Here we go again with another bunch of economic non sequiturs and tortured metaphors. Surprised you didn't throw in the 45% Ruble devaluation which surely has to mean the US is on the edge of economic collapse. LOL. Your mind is so confused I often wonder whether you understand that the EMH is in complete contradiction to much of what you preach.
Here we go again with another bunch of economic non sequiturs and tortured metaphors. Surprised you didn't throw in the 45% Ruble devaluation which surely has to mean the US is on the edge of economic collapse. LOL. Your mind is so confused I often wonder whether you understand that the EMH is in complete contradiction to much of what you preach.
5
@John: Ad hominem all you've got? Sad...
2
May I at least compliment the most awesome comment on this blog from ohn from Hartford?
'Sorry Paul this is largely baloney. The Swiss have had one of the strongest currencies in the world forever. They were trying to defend an unsustainable peg intended to keep them competitive, principally against the Euro which takes about half their exports, and in the face of a flood of hot money SF purchases from dodgy places like Russia. Finally the cost became too high. This was not principally about deflation, tightening or government spending. You're confusing correlations with causations here big time.'
'Sorry Paul this is largely baloney. The Swiss have had one of the strongest currencies in the world forever. They were trying to defend an unsustainable peg intended to keep them competitive, principally against the Euro which takes about half their exports, and in the face of a flood of hot money SF purchases from dodgy places like Russia. Finally the cost became too high. This was not principally about deflation, tightening or government spending. You're confusing correlations with causations here big time.'
3
hansfritz
I'm actually something of an admirer of Krugman but he really does say the daftest things at times. Where does he think the German mark would be assuming it existed. Why does he think they're in the Eurozone? They don't have the luxury of behaving like the Swiss. The Swiss had a largely Swiss specific problem which they have dealt with. His extrapolations, not to mention others I've seen, were absurd.
I'm actually something of an admirer of Krugman but he really does say the daftest things at times. Where does he think the German mark would be assuming it existed. Why does he think they're in the Eurozone? They don't have the luxury of behaving like the Swiss. The Swiss had a largely Swiss specific problem which they have dealt with. His extrapolations, not to mention others I've seen, were absurd.
2
Isn't that precisely the explanation Krugman offered?
"on Thursday the Swiss suddenly gave up. We don’t know exactly why; nobody I know believes the official explanation, that it’s a response to a weakening euro. But it seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive."
"on Thursday the Swiss suddenly gave up. We don’t know exactly why; nobody I know believes the official explanation, that it’s a response to a weakening euro. But it seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive."
1
All this talk about deflation, but as a middle class consumer, I just don't see it. Sure, gas prices have gone down, but virtually everything else keeps going up: food, electricity, rents, transportation (public and private), education, healthcare (where the rise has slowed, but costs continue to increase), telecommunications, servers, etc., etc.). One thing seems clear: for the majority of people, what with lower incomes and reduced retirement expectations, life has, in fact, become more expensive, less economically secure.
10
Wages are declining, so there is less money to buy things at any price.
2
When will the public comprehend fiat currency macro economics? I fear, never, because the interests of the wealthy are served by falsely equating private debt with the debt of central banks.
Here's the reality: Central Banks create and destroy money by buying and selling debt with currency created by keystroke all the time, and it is good. They also encourage and discourage the private creation of money (in the form of debt) by raising and lowering interest rates, and that is good too. Central banks ensure there is enough money flowing through the system to employ the economy's productive capacity. If money is sitting on the sidelines, not being spent, and as a result potentially productive resources (workers, factories, equipment) is idle, the Central Bank creates more liquidity (by buying debt and/or lowering interest rates) which hopefully is used to put the idle to work. This is because an economy's wealth is its OUTPUT, not its pile of currency.
Ideally, the liquidity the Central Bank creates is 'borrowed' by the government, which spends it directly on putting economic capacity to work building a more productive economy for the future.
The Swiss demonstrated this by creating unlimited Swiss francs by keystroke to buy mountains of Euros. For all those who can't understand that money is created by keystroke, please ruminate on this.
Here's the reality: Central Banks create and destroy money by buying and selling debt with currency created by keystroke all the time, and it is good. They also encourage and discourage the private creation of money (in the form of debt) by raising and lowering interest rates, and that is good too. Central banks ensure there is enough money flowing through the system to employ the economy's productive capacity. If money is sitting on the sidelines, not being spent, and as a result potentially productive resources (workers, factories, equipment) is idle, the Central Bank creates more liquidity (by buying debt and/or lowering interest rates) which hopefully is used to put the idle to work. This is because an economy's wealth is its OUTPUT, not its pile of currency.
Ideally, the liquidity the Central Bank creates is 'borrowed' by the government, which spends it directly on putting economic capacity to work building a more productive economy for the future.
The Swiss demonstrated this by creating unlimited Swiss francs by keystroke to buy mountains of Euros. For all those who can't understand that money is created by keystroke, please ruminate on this.
6
Sam, maybe output is not the same anymore. Fewer workers are needed to create more goods. But there is less money to buy because there are fewer jobs, so people are "sharing" to avoid having to purchase. So there is a devaluation of good, quite naturally, as there is less demand.
2
@Carolyn,
You've really struck on the heart of the matter. What is gov't to do if the labor of only 1/2 the workers is desired for any purpose? First, I'd say that there are lots of things that could be done to make our lives better, and the gov't should extract that out of the idle workers by stepping in to demand their labor. Traditionally, we're talking about more teachers, childcare, infrastructure, etc. But what if the gov't put idle people to work making everyone's landscaping pretty? That's better than nothing, and there is clearly a long list of things for idle workers to do if the gov't would only pay them to do it.
Second, if productivity has truly diminished all reasonable demand, then we can reduce the labor for all the people. Among the ways to do this are to reduce the workweek, extend the public schooling period through undergraduate college, lower the retirement age, lower the standard for disability, increase vacation time, and increase paid family leave.
The point is that freed of sado-monetarism, gov't can enact policies that get our potential productivity to actually produce the most total wealth possible. Just don't expect the cooperation of those few who exploit the low demand for labor to hog all the good stuff for themselves.
You've really struck on the heart of the matter. What is gov't to do if the labor of only 1/2 the workers is desired for any purpose? First, I'd say that there are lots of things that could be done to make our lives better, and the gov't should extract that out of the idle workers by stepping in to demand their labor. Traditionally, we're talking about more teachers, childcare, infrastructure, etc. But what if the gov't put idle people to work making everyone's landscaping pretty? That's better than nothing, and there is clearly a long list of things for idle workers to do if the gov't would only pay them to do it.
Second, if productivity has truly diminished all reasonable demand, then we can reduce the labor for all the people. Among the ways to do this are to reduce the workweek, extend the public schooling period through undergraduate college, lower the retirement age, lower the standard for disability, increase vacation time, and increase paid family leave.
The point is that freed of sado-monetarism, gov't can enact policies that get our potential productivity to actually produce the most total wealth possible. Just don't expect the cooperation of those few who exploit the low demand for labor to hog all the good stuff for themselves.
2
It is surreal that economists say that raising interest rates discourages lending. They discourage borrowing.
2
"If you ask me, the Swiss just made a big mistake".
1) The Swiss won't be asking you
2) Your statement is almost certain proof they made the right move.
Switzerland has one of the highest standard of livings in the world, 2.9% unemployment, a strong safety net, very little crime, political stability, etc. all achieved with decades of fiscal responsibility. Naturally, the latter is abhorrent to the professor. Meanwhile, Japan, which slavishly follows the professor's gorge on infrastructure spending, borrow, print, etc. advice has been sinking into a pit for 25 years.
http://www.zerohedge.com/news/2015-01-08/krugmans-japanese-legacy-record...
Now the Europeans are going to follow Japan down that same Keynesian rathole, and the silly Swiss didn't want to continue buying hundreds of billions of Euros and go down with them. If only they had consulted the professor...
1) The Swiss won't be asking you
2) Your statement is almost certain proof they made the right move.
Switzerland has one of the highest standard of livings in the world, 2.9% unemployment, a strong safety net, very little crime, political stability, etc. all achieved with decades of fiscal responsibility. Naturally, the latter is abhorrent to the professor. Meanwhile, Japan, which slavishly follows the professor's gorge on infrastructure spending, borrow, print, etc. advice has been sinking into a pit for 25 years.
http://www.zerohedge.com/news/2015-01-08/krugmans-japanese-legacy-record...
Now the Europeans are going to follow Japan down that same Keynesian rathole, and the silly Swiss didn't want to continue buying hundreds of billions of Euros and go down with them. If only they had consulted the professor...
6
What a pity the Swiss move has nothing, or very little, to do with the issues you or Krugman raise. He probably knows this... what's your excuse?
2
http://www.businessinsider.com/infrastructure-spending-program-2012-6
Not everyone agrees with you, Rain on the Lib Parade….
Not everyone agrees with you, Rain on the Lib Parade….
2
@John.
An assertion with no supporting facts, just an ad hominem. A page right out of the professor's playbook.
Most economic analysts, as opposed to political ones seeking to promote central government/bank profligacy (Dr K), argued that the move was triggered by the ECB's impending QE, for which the professor has been advocating. e.g.
http://www.businessweek.com/articles/2015-01-15/heres-what-the-swiss-cen...
An assertion with no supporting facts, just an ad hominem. A page right out of the professor's playbook.
Most economic analysts, as opposed to political ones seeking to promote central government/bank profligacy (Dr K), argued that the move was triggered by the ECB's impending QE, for which the professor has been advocating. e.g.
http://www.businessweek.com/articles/2015-01-15/heres-what-the-swiss-cen...
The motivation for slashing government spending is the same as that advocating for increased interest rates: the uber wealthy wish to pay lower taxes and charge more rent for their capital.
That this causes even greater wealth disparity and fosters a class structure akin to that of the Guilded Age is of no concern to this who long ago convinced themselves that their gains are due entirely to their "good decisions" and "hard work". This despite the facts that wealth buys innumerable competitive advantages and inheritances are once again on the rise.
That this causes even greater wealth disparity and fosters a class structure akin to that of the Guilded Age is of no concern to this who long ago convinced themselves that their gains are due entirely to their "good decisions" and "hard work". This despite the facts that wealth buys innumerable competitive advantages and inheritances are once again on the rise.
10
Rather than pegging their currency and hoarding Euros, what would have happened if the Swiss had gone on a massive spending spree, scooping up assets all over Europe at fire-sale bargain prices. I'm talking about stocks, bonds, real estate, commodities, whatever was for sale at attractive prices. Wouldn't the Swiss have made out like bandits and, as a bonus, avoided all the turmoil we are seeing now in the financial markets?
3
'what would have happened if the Swiss had gone on a massive spending spree, scooping up assets all over Europe at fire-sale bargain prices.'
Every Swiss would regret it now - because NOW the Swiss really can go on a shopping spree with the additional 18 percent they gained.
Every Swiss would regret it now - because NOW the Swiss really can go on a shopping spree with the additional 18 percent they gained.
Is this because of what's happening with oil? Or is it indicative of an oncoming recession/deflationary/new depression in the world economy? How do we untangle cause and effect here? Do we need to have a global economic policy? Maybe the real question is what the nations of the world can do to ensure that all people have access to food, water, education, health care, living space, decent jobs, etc. In short, perhaps we need to think and act globally rather than mouth those words. I'm not an economist and there are many things I do not understand but what I've seen in the last years convinces me that nothing will be accomplished unless we set aside politics and plan for a better world.
5
I would agree with you, accept that trade treaties have already done this by making corporations the global arbiters of new laws. Corporations for all practical purposes, now run the world. And look what that does for humanity! Not much…but does make a few very wealthy.
5
If deflation is not an option, the only way for the Fed to prevent equity, fixed income and housing prices from collapsing as the Boomers switch from saving to spending will be to issue more dollars and slowly dilute the currency. Demographics are driving finance; demand will drop and the government will have to try to engineer something like a soft landing. Sadly, we Boomers will be offering our children overpriced stocks and overpriced houses; the comfort of our own retirement depends on cashing out of our assets at high prices, even if the proceeds of the sales have less and less purchasing power. The only other course would be to encourage immigration and population growth, and that poses political problems. Meanwhile, it's a blame game.
3
The Swiss have long experience with negative interest rates. They've always charged for, rather than paid interest on, those big secretive deposits from foreigners. The difference is that now they're applying the same thing to bank reserves. It's not a new principle to them, just a new application.
6
I have read a number of comments claiming deflation is a boon to the ordinary consumer. However, IMO, these commenters are missing the big picture, which is the decline in prices is due to a lack of demand, and we will reach a point where deflationary pressures will lead to business failures.
The basis for my opinion is grounded in fact; many businesses have fixed costs, which are not easily renegotiated, such as long term contracts with suppliers, energy costs, that despite the recent collapse in oil prices do not quickly translate to lower fuel and electric costs, and finally the Keynesian notion of "sticky wages."
There is also the problem of consumer credit purchases, and, of course, home mortgages, who are now underwater on every asset, and more so on their primary residence.
Finally, the collapse in commodity prices was a precursor to the great depression, and I would recommend the vast masses who view declining prices as the "gift that keeps on giving," keep in mind another cliché; "there is no free lunch."
The basis for my opinion is grounded in fact; many businesses have fixed costs, which are not easily renegotiated, such as long term contracts with suppliers, energy costs, that despite the recent collapse in oil prices do not quickly translate to lower fuel and electric costs, and finally the Keynesian notion of "sticky wages."
There is also the problem of consumer credit purchases, and, of course, home mortgages, who are now underwater on every asset, and more so on their primary residence.
Finally, the collapse in commodity prices was a precursor to the great depression, and I would recommend the vast masses who view declining prices as the "gift that keeps on giving," keep in mind another cliché; "there is no free lunch."
11
Good point. And don't be too sure about sticky wages. When I first started working back in the 60s for a large insurance company, some of the employees who had been through the Depression with the company told me they got cost-of-living decreases!
Of course, the problem was exacerbated by Herbert Hoover's shovel, the government insisting that austerity was the cure, thereby reducing demand further and digging the hole deeper. The amazing thing is that, when you listen to some of the "experts" today, it's not just that there is nothing to learn from the Depression, it's as though the Depression never happened.
Of course, the problem was exacerbated by Herbert Hoover's shovel, the government insisting that austerity was the cure, thereby reducing demand further and digging the hole deeper. The amazing thing is that, when you listen to some of the "experts" today, it's not just that there is nothing to learn from the Depression, it's as though the Depression never happened.
3
Deflation makes it ever more difficult to pay whatever debts one has.
2
America now has a tremendous opportunity to take advantage of its prime position in the world: to wit, by massively investing in infrastructure, education, new technologies for clean energy, and transportation. Now is the time to seize the moment.
29
Long term bonds sold at toay's rates have astronomical interest rate risk.
1
And we have a Republican congress , assuredly dodge this great opportunity, 5 years later more or less all economies little bit stabilizes we may never find the investors money.
1
The impetus behind deflationary pressures has the same root cause as nearly all of society's current fiscal and economic woes -- the overconcentration of wealth at the top.
Concentration of wealth causes demand to fall. When demand falls, prices fall. Austerity increases the rate of wealth concentration, as do tax cuts that chiefly benefit the rich, and the kind of internationalization that makes first-world workers compete dollar-for-dollar against workers in third world nations who pay $40/mo. rent and subsist largely on diets of rice (and who have their health care paid for by their governments). Another major factor in reducing demand is the effect on salaries brought about by the highly successful war waged by the political right against collective bargaining.
Western nations, including the United States, should be making policy decisions with an eye toward whether those policy changes will serve to concentrate or diffuse wealth. Diffusing wealth should be the goal and it should be pursued purposefully and powerfully.
It is our way out of our fiscal woes.
Concentration of wealth causes demand to fall. When demand falls, prices fall. Austerity increases the rate of wealth concentration, as do tax cuts that chiefly benefit the rich, and the kind of internationalization that makes first-world workers compete dollar-for-dollar against workers in third world nations who pay $40/mo. rent and subsist largely on diets of rice (and who have their health care paid for by their governments). Another major factor in reducing demand is the effect on salaries brought about by the highly successful war waged by the political right against collective bargaining.
Western nations, including the United States, should be making policy decisions with an eye toward whether those policy changes will serve to concentrate or diffuse wealth. Diffusing wealth should be the goal and it should be pursued purposefully and powerfully.
It is our way out of our fiscal woes.
32
Companies that say they want the government to train workers for them in the US train their own workers in exported factories.
2
Agreed
1
The Swiss may pay ( a small price) now, but in the long term this is the return of sanity. Central banks cannot continue to take us down the rabbit hole. The policy of ZIRP will end in tears. Believe it or not, I am a liberal. I pressed for more ( here in U.S) fiscal stimulus when we needed it most. Real job creation for infrastructure, etc. But, creating money to finance auto purchases is just a redux of bad ideas. Let the market clear. Lower prices are needed. Too bad the elite are protecting themselves, as they hold hard assets, especially Monopoly ( the game) money real estate in the bastions of the world's financial centers. The Swiss actually know the truth. The Germans have hard currency backed by industrial production. The rest is fiction.
11
Sorry Paul this is largely baloney. The Swiss have had one of the strongest currencies in the world forever. They were trying to defend an unsustainable peg intended to keep them competitive, principally against the Euro which takes about half their exports, and in the face of a flood of hot money SF purchases from dodgy places like Russia. Finally the cost became too high. This was not principally about deflation, tightening or government spending. You're confusing correlations with causations here big time.
11
I think the column makes the same points and assertions about Swiss currency and monetary history that you do. Given this, Switzerland is making decisions about its currency policy in the context of a ROW that is dealing with issues of deflation and fiscal alternatives. To the extent that these ROW actions matter for the Swiss (and they do), those issues also matter.
bdbd
"To the extent that these ROW actions matter for the Swiss (and they do), those issues also matter."
But not much. Note I said "principally." The Swiss were dealing with very much a Swiss specific problem. While Krugman mentioned these issues it seems to have escaped your notice that the vast majority of his piece was about deflation and wider issues of government fiscal policy. He built 50,000 square foot house on a 2000 square foot foundation.
"To the extent that these ROW actions matter for the Swiss (and they do), those issues also matter."
But not much. Note I said "principally." The Swiss were dealing with very much a Swiss specific problem. While Krugman mentioned these issues it seems to have escaped your notice that the vast majority of his piece was about deflation and wider issues of government fiscal policy. He built 50,000 square foot house on a 2000 square foot foundation.
Actually it is about deflation, believing that Swiss banks has immunity to world crisis is an utter folly. Since 2008 they also took lots of damage. How can you isolate a country in the middle of the Europe with half trade with Europe is not affecting from Europe deflation.
They are at the brink of deflation, they knew very well. It is about deflation.
They are at the brink of deflation, they knew very well. It is about deflation.
Maybe we should start looking at things a bit differently.
Japan is the great horrible example of deflation and shrinking GDP, yet individual Japanese seem to be doing fairly well. One only has to look at their life expectancy (always a good judge of how individuals are doing) compared to other countries to see this. Ask yourself how many stories of desperately impoverished, or long term unemployed, or falling middle class, people have come out of Japan over the last 20 years.
I would love Prof. Krugman to compare a country's change in GDP to change in population. My gut is that he might find the results interesting. If he were then to factor in the ratio to show only the change in native born population, and then the change in foreign born population, more insights might emerge.
Do countries with shrinking native populations fare better for individuals than those with growing ones? Does the ratio of foreign residents to native ones change the rate of GDP/total population positively or negatively? etc.
Frankly opinions on inflation/deflation and GDP without taking the above into account seem almost quaint.
Japan is the great horrible example of deflation and shrinking GDP, yet individual Japanese seem to be doing fairly well. One only has to look at their life expectancy (always a good judge of how individuals are doing) compared to other countries to see this. Ask yourself how many stories of desperately impoverished, or long term unemployed, or falling middle class, people have come out of Japan over the last 20 years.
I would love Prof. Krugman to compare a country's change in GDP to change in population. My gut is that he might find the results interesting. If he were then to factor in the ratio to show only the change in native born population, and then the change in foreign born population, more insights might emerge.
Do countries with shrinking native populations fare better for individuals than those with growing ones? Does the ratio of foreign residents to native ones change the rate of GDP/total population positively or negatively? etc.
Frankly opinions on inflation/deflation and GDP without taking the above into account seem almost quaint.
2
Anyone who really understands economics know that price controls don't work. Thanks SNB for finally coming to the realization with exchange rates. How much pain must be realized before central banks realize price controls don't work with interest rates either.
Anyone who understands both economics and history will know that deflation serves a purpose of punishing debtors who take bad risks, rewards people who save money and cleanses the market for the next stage of economic growth.
Neither inflation or deflation are good or bad, they are just repeatable market mechanisms that correct imbalances by punishing poor decision makers.
Anyone who understands both economics and history will know that deflation serves a purpose of punishing debtors who take bad risks, rewards people who save money and cleanses the market for the next stage of economic growth.
Neither inflation or deflation are good or bad, they are just repeatable market mechanisms that correct imbalances by punishing poor decision makers.
8
Just exactly how does "cleansing" help the economy or create wealth?
-This in turn sent the Swiss franc soaring, with devastating effects on the competitiveness of Swiss manufacturing, and threatened to push Switzerland — which already had very low inflation and very low interest rates — into Japanese-style deflation.
This sounds like the 'strong dollar' policies both parties in the US have followed since before I was born. Thankfully, we have been exceptional enough to avoid deflation...I think mainly this is only due to the fact that the rest of the world still uses the dollar as a reserve currency. However, this has devastated any industry that has overseas competition or can be outsourced overseas. The US has accepted stagnation wages, virtually no benefits and a higher than historically normal average level of unemployment for decades (barring a blip from the dot com boom). I do not see an optimistic future for the middle class unless we realize that our 'exceptionalism' is behind us and that we need to compete with the rest of the world (and not just by throwing money at our MIC).
This sounds like the 'strong dollar' policies both parties in the US have followed since before I was born. Thankfully, we have been exceptional enough to avoid deflation...I think mainly this is only due to the fact that the rest of the world still uses the dollar as a reserve currency. However, this has devastated any industry that has overseas competition or can be outsourced overseas. The US has accepted stagnation wages, virtually no benefits and a higher than historically normal average level of unemployment for decades (barring a blip from the dot com boom). I do not see an optimistic future for the middle class unless we realize that our 'exceptionalism' is behind us and that we need to compete with the rest of the world (and not just by throwing money at our MIC).
9
Paul,
I’ve been reading your blog since the last Qtr. of 2007. For years you have been raising the specter of deflation again and again and using Japan as an example how difficult it is to escape it (they haven’t since the 90’s). Ever since the 2008 meltdown, I could never understand why Americans were not organizing and protesting in large numbers given all the revelations that surfaced on Wall Street’s syndicate crime families. No senior managers were held accountable or issued indictments. All of them were permitted to retain their positions and rack up obscene bonuses the following year despite the cost to taxpayers to bail them out, losing jobs, homes and retirement savings. History shows that In order for significant change to occur from the bottom up, the pain has to be sufficiently widespread to motivate people to action. Maybe deflation is our best hope to break up the Oligarch’s solid grip on political power and create representative government responsive foremost to the people.
I’ve been reading your blog since the last Qtr. of 2007. For years you have been raising the specter of deflation again and again and using Japan as an example how difficult it is to escape it (they haven’t since the 90’s). Ever since the 2008 meltdown, I could never understand why Americans were not organizing and protesting in large numbers given all the revelations that surfaced on Wall Street’s syndicate crime families. No senior managers were held accountable or issued indictments. All of them were permitted to retain their positions and rack up obscene bonuses the following year despite the cost to taxpayers to bail them out, losing jobs, homes and retirement savings. History shows that In order for significant change to occur from the bottom up, the pain has to be sufficiently widespread to motivate people to action. Maybe deflation is our best hope to break up the Oligarch’s solid grip on political power and create representative government responsive foremost to the people.
25
Deflation simply hands over the collateral of failed borrowers to their lenders, furthe concentrating wealth.
2
You are so right when you say, " History shows that In order for significant change to occur from the bottom up, the pain has to be sufficiently widespread to motivate people to action."
Takes something like real calamity to jolt nations to act (through policies & politicians.)
Takes something like real calamity to jolt nations to act (through policies & politicians.)
1
As the Swiss understand, the value of money is relative. I always think it is queer how people view money. It has no intrinsic value, but is tied to ever changing market movements. Money is simple trust. And it is mind boggling how financial products made out of thin air, have such inflated values based on often questionable assumptions. It's essentially like trading marbles. The only thing that really counts as value is work and products and creativity relative to availability and demand for those things. And now work is losing its value as robots and the old top down corporate models are simply not necessary in a world where a few workers with computers can run a giant global operation. Our value systems are being up ended and in the meantime are pretty uncomfortable without some investment in new infrastructures of renewable energy, transportation and communication to provide jobs for now and a base for the future. PK knows this well. Europe is way better positioned for these changes than the US. Social capital or trust is moving markets now more than ever. Sharing and recycling and less ownership is taking the place of consumerism. I see it mostly with the younger crowds shut out of the typical job markets of the past. The Swiss are the tip of the iceberg of changes happening now and to come.
22
Since money has no intrinsic value, I've got a lot of glass marbles, some pretty patterns, how about giving me $10,000 for the lot? P&P free.
3
Money has no more intrinsic value than your marbles. Marbles could be money. Money has the value we put on it only. Markets affect the value of money and markets can be manipulated. The notion of markets, value on things, etc, is in huge flux, as people are turning away from ownership to sharing and less labor. That's why the IRS taxes the value of what is bartered, because to barter would upend the whole capitalistic system of all things monetized and would mean little tax revenue. The sharing economy is a growing threat to the old system which is falling away like an old skin. People are learning to survive outside the system of the old top down system of corporatism. Capitalism is not the problem except when allowed to run society. It has always needed to be modified with public good. The English made businesses out of the old sharing ways of things like burying the dead (undertakers), aiding the needy (insurance you purchase) etc. made further necessary by regulations benefitting those industries and enforcing laws making them mandatory. Now industry runs the world directly through trade treaties and essentially owns interntional law through them. Money and power are the by products of these laws, dictating value to billions of people in the world to suit special interests.
2
My comment on your comment was not posted…could be my terrible connection in Valley Lee, but in essence what I wrote was money might as well be marbles. It was gold at one time, and even tulips had a go at it, in a way. Indians thought beads were terrific from what they tell me. Money's value is completely manipulated. It's done over and over…my dad used to call the bankers the rake off artists. He was born in 1900.
1
Swiss economy has a GDP of around $380 B US dollars (purchasing parity) and a population of under 10 million. The US state of Ohio is larger.
Are these jurisdictions big enough to play on their own with their own currency in today's world?
Are these jurisdictions big enough to play on their own with their own currency in today's world?
4
What is the question, Ohio is seceding?
I consider first California, they are outright in the G20 if secedes.
I consider first California, they are outright in the G20 if secedes.
Here in Ohio, maybe we'll issue the Buckeye as our state's currency.
The short answer is yes. When you need "hard" money, the place to turn to are the Swiss banks. Even if your only exports are chocolate and cuckoo clocks, you can feel safe if you hold the chips.
This is an excellent analysis. What you have described is the Keynesian economic theory, much derided in modern economics, of a liquidity trap. In a liquidity trap, injecting money fails to stimulate the economy because the money is simply hoarded.
The Swiss seem to think there is some room left for monetary policy to stimulate the economy by lowering interest rates to below zero. Inflation is not a word that the Swiss want associated with their economy, but no matter what they call it, this recent action is designed to inflate their currency. It is also a defensive action, designed to make their goods more competitive compared to Euro-denominated goods.
Especially in light of the these moves by the Swiss, It is important that our central bank continue to keep interest rates low for the foreseeable future. Plan B, of course, is the Keynesian tactic of more government spending, which would have to be massive to overcome such a deflationary spiral. See the New Deal, Hoover Dam, etc.
That latter path is probably not politically viable. Certainly, however, cutting back on government programs, as perennially proposed by the Republicans, is a bad idea.
The Swiss seem to think there is some room left for monetary policy to stimulate the economy by lowering interest rates to below zero. Inflation is not a word that the Swiss want associated with their economy, but no matter what they call it, this recent action is designed to inflate their currency. It is also a defensive action, designed to make their goods more competitive compared to Euro-denominated goods.
Especially in light of the these moves by the Swiss, It is important that our central bank continue to keep interest rates low for the foreseeable future. Plan B, of course, is the Keynesian tactic of more government spending, which would have to be massive to overcome such a deflationary spiral. See the New Deal, Hoover Dam, etc.
That latter path is probably not politically viable. Certainly, however, cutting back on government programs, as perennially proposed by the Republicans, is a bad idea.
21
Being economically ignorant as the vast majority of Americans are, I grudgingly supported the Bush bailout as necessary to avoid a complete financial meltdown. Surely respectable economists could still make a strong case that the bailout was indeed crucial to squelch fiscal calamity.
However, in retrospect, I'm feeling more and more as if we should have simply let Wall St implode. The architects of the collapse and beneficiaries of the bailout have learned nothing. Instead of being humbled and wiser , they seek to undo the modest reforms of Dodd-Frank and return to unbridled speculation and casino capitalism. A system where they're the house and the game is rigged in their favor.
And why shouldn't they? Wall St had the party and Main St got the hangover. As soon as these titans of Wall St got bailed out and their legs back under them, they quickly pivoted to austerity championing and deficit reduction lectures. They cried about bonuses and being hamstrung in keeping their key personnel. Galling doesn't begin to describe their arrogance and ingratitude.
Meanwhile, on Main St, the damage is is done, productive years lost, pensions gutted, economic security nonexistent and the new GOP Congress poised to enable and abet their returning Wall St masters to finish the destruction of the American dream.
However, in retrospect, I'm feeling more and more as if we should have simply let Wall St implode. The architects of the collapse and beneficiaries of the bailout have learned nothing. Instead of being humbled and wiser , they seek to undo the modest reforms of Dodd-Frank and return to unbridled speculation and casino capitalism. A system where they're the house and the game is rigged in their favor.
And why shouldn't they? Wall St had the party and Main St got the hangover. As soon as these titans of Wall St got bailed out and their legs back under them, they quickly pivoted to austerity championing and deficit reduction lectures. They cried about bonuses and being hamstrung in keeping their key personnel. Galling doesn't begin to describe their arrogance and ingratitude.
Meanwhile, on Main St, the damage is is done, productive years lost, pensions gutted, economic security nonexistent and the new GOP Congress poised to enable and abet their returning Wall St masters to finish the destruction of the American dream.
123
I can certainly understand the sentiment that we should have let the architects of the collapse suffer. The problem with this idea is they would have dragged us down into depression. Do you have a 401(k)? What you propose would have, surely, devastated its value. And therein lies the problem: we can deride Wall Street all we want, but it is our investments for retirement that make up the lion's share of the money invested.
A far better solution would be to put some real teeth into enforcement. Unfortunately, the Justice Department has been complicit by arranging settlements rather than pursuing real prosecution. A bank negotiates a settlement, Justice gets a big cash infusion, the individuals responsible get no punishment whatsoever and the low-level employees of the bank get laid off. That needs to change.
A far better solution would be to put some real teeth into enforcement. Unfortunately, the Justice Department has been complicit by arranging settlements rather than pursuing real prosecution. A bank negotiates a settlement, Justice gets a big cash infusion, the individuals responsible get no punishment whatsoever and the low-level employees of the bank get laid off. That needs to change.
17
No. Better to let the fantasy price NYC real estate market collapse. Sorry, but Wall Street is what is wrong with America for the last 30 years. Finance as alchemy is no replacement for productive means of inevstment, ie; industrial production.
7
Letting Wall Street and big banks collapse was not an option, that would have caused most pension funds to evaporate and would have plunged the country into a depression even more severe than in the early 1930's. What was wrong headed is to bail out only the banks but not people who were now losing their homes because they could not afford the increase cost of variable mortgages. The amount of money involved was less than the amount used to bail out banks and financial institutions. The other big mistake was not impose strict conditions on how banks were supposed to use that bailout money, certainly none should have gone to pay bonuses to upper management.
11
The eminent Dr. Krugman should know cuckoo clocks are a German Black Forest invention and not Swiss. If he were to mention what the Swiss are famous for it should have been elegant watches, precision machinery, fine chocolates, delicious cheeses, Swiss army knives, and fine craftsmanship in general.
And yes, with the Swiss you don't get surprises. Thanks to their Protestant ethic fostered by Calvin and Zwingli, they are hard workers and are proud of what they have accomplished over many generations - the envy of many other European countries.
The Swiss will never give up their borders and the Swiss franc, since this would compromise everything they have worked for. The failures of the European Union are the very reason they remain an island of stability in the very heart of Europe.
Unpegging the Swiss franc from the euro is only a portend of what will happen with many world currencies. The United States with its overprinting of our fiat currency should always be aware of how that very act brought down the Weimar Republic. We Americans are in worse shape than the Swiss will ever be.
And yes, with the Swiss you don't get surprises. Thanks to their Protestant ethic fostered by Calvin and Zwingli, they are hard workers and are proud of what they have accomplished over many generations - the envy of many other European countries.
The Swiss will never give up their borders and the Swiss franc, since this would compromise everything they have worked for. The failures of the European Union are the very reason they remain an island of stability in the very heart of Europe.
Unpegging the Swiss franc from the euro is only a portend of what will happen with many world currencies. The United States with its overprinting of our fiat currency should always be aware of how that very act brought down the Weimar Republic. We Americans are in worse shape than the Swiss will ever be.
6
The Weimar Republic did not fall in 1923 when hyperinflation made the mark worthless. it fell in 1933 after the German government had pursued a policy of austerity in the face of the ravages of the Great Depression. We might also mention that the collapse of the currency in 1923 came in the wake of the defeat in WWI and the punitive terms of the peace treaty foisted on Germany by the victorious allies.
In the US, after years of rapid increases in the monetary base, the dollar is very strong and inflation is very subdued.
In the US, after years of rapid increases in the monetary base, the dollar is very strong and inflation is very subdued.
14
Ah, "fiat currency". The bogeyman of the Ayn Rand crowd. Nobody knows what it is, but everybody knows it's bad.
Sure got a surprise yesterday.
Make no mistake that the financial disaster for the US is on the way. As long as interest rates are low, people like Krugman will be pushing government borrowing and debt explaining how cheap the money is. The problem erupts when interest rates rise one day in the future (and they will) and all of the debt accumulated becomes unaffordable. I personally believe that Krugman knows this and is looking forward to the day when the US budget debt payments are so large that the only way out is massive devaluation of the dollar by printing trillions of dollars and thus the removal of accumulated wealth by families and individuals who saved for years. This is no different than what happened after the massive debt of WWII, which appears to be minuscule compared to the trillions the government has borrowed.
8
There has to be a catalyst and a mechanism for "interest rates (to) rise one day in the future". If they rise because the economy starts growing again at a steady pace then the Fed will have succeeded. That is their publicly stated aim. The period after WWII was a 20-year stretch of almost uninterrupted growth so I'm not sure what you are worried about.
9
The catalyst will be inflation. If inflation goes higher, interest rates go higher too. What has been keeping inflation muted is a fairly weak recovery. If the US economy were to return to 3-4% GDP growth regularly as is the historic norm, interest rates will rise, the cost of debt will rise, and there will then be urgency to pay down the debt.
The only other choice is to continue printing money, which erodes wealth and the standard of living. This action is typically reserved for third world countries. If a country shows it is willing to wipe out wealth through printing money, it becomes hard to convince people after the fact to work hard and save wealth again. Basically you can only pull the trick once.
The only other choice is to continue printing money, which erodes wealth and the standard of living. This action is typically reserved for third world countries. If a country shows it is willing to wipe out wealth through printing money, it becomes hard to convince people after the fact to work hard and save wealth again. Basically you can only pull the trick once.
3
Oh my gosh, the terrible post WWII period, when from 1946 to 1973 we increased the debt by 75%. Of course, real median household income surged 74% and average GDP growth was 3.8% so the public debt ratio went from 109% in 1946 to 24% in 1973. Just terrible!
11
Deflation. The situation that occurs when there's less demand than supply. "Economists" like Krugman continually push for more spending by gov't to offset deflationary pressures, yet cringe at the idea of individuals getting to keep more of their own money to spend and invest on things that actually grow an economy, unlike the gov't, which does not.
People don't spend their money on annual budgets the way Uncle Sam does, so consumer spending vastly increases velocity of spending in an economy, which provides a multiplier effect during the same periods of time.
Does Krugman support that? No, not because the economic benefit isn't obvious, but that's not his political agenda, so economics don't matter. The only reason the Swiss are "paying the price" is because they tried to artificially peg their Franc to the Euro, which is a mess.
People don't spend their money on annual budgets the way Uncle Sam does, so consumer spending vastly increases velocity of spending in an economy, which provides a multiplier effect during the same periods of time.
Does Krugman support that? No, not because the economic benefit isn't obvious, but that's not his political agenda, so economics don't matter. The only reason the Swiss are "paying the price" is because they tried to artificially peg their Franc to the Euro, which is a mess.
4
"People don't spend their money on annual budgets the way Uncle Sam does, so consumer spending vastly increases velocity of spending in an economy, which provides a multiplier effect during the same periods of time. "
True enough, but economists of all political stripes (and, yes, Dr. Krugman is an economist) have concluded that in a time of inadequate aggregate demand the multiplier effect for direct government spending is the highest, next comes tax cuts/rebates to the poor and middle class who are virtually guaranteed to spend it. Tax cuts for people in the uppermost tax brackets have the lowest multiplier because it will not be spent by them.
True enough, but economists of all political stripes (and, yes, Dr. Krugman is an economist) have concluded that in a time of inadequate aggregate demand the multiplier effect for direct government spending is the highest, next comes tax cuts/rebates to the poor and middle class who are virtually guaranteed to spend it. Tax cuts for people in the uppermost tax brackets have the lowest multiplier because it will not be spent by them.
18
Consumer spending contributes roughly 70% to GDP. But if the consumer(the people of the US i.e. WE the people) does not have any money left after paying for all the necessities, how is the US GDP to grow?
We the people are the "Job creators" by creating demand for the goods that the false Job Creators( i.e. the 1%) then make. When profit dries up these same false job creators fire people and destroy jobs. So putting more money in the hands of We the people is the way to grow the economy. And borrowing to build infrastructure is unfortunately necessary to prevent the infrastructure from crumbling. This also puts money in the hands of workers and like you say provides the multiplier effect. Please keep arguing your points - logically, not idealogically.
We the people are the "Job creators" by creating demand for the goods that the false Job Creators( i.e. the 1%) then make. When profit dries up these same false job creators fire people and destroy jobs. So putting more money in the hands of We the people is the way to grow the economy. And borrowing to build infrastructure is unfortunately necessary to prevent the infrastructure from crumbling. This also puts money in the hands of workers and like you say provides the multiplier effect. Please keep arguing your points - logically, not idealogically.
17
great analysis as usual. The Swiss have shown, as Dr. Krugman pointed out, that they are not immune to the financial struggles of our new- but not brave- world of shared economies, or one big economy, that all nations have to face today. Their old conservative monetary policies coupled with neutrality, wealth and defensive genius worked in the "old world" but that world is gone. An interesting idea expressed by Karch. Imagine if all the super wealthy here were paying 0.75 for their banked millions.
5
Switzerland didn't "fall" into deflation; it was pushed in by the depreciating currencies of its neighbors. What does that suggest for the United States? Can it resist the devaluations abroad without slipping into deflation? How, when interest rates are already zero and each monetary expansion produces a surge in asset prices? It's long past time to trot out taxes on capital and capital income, starting with taxes on the windfalls generated by monetary expansion. That can and will stop deflation; nothing else is likely to work.
21
Dr. Krugman, I'd love to hear you elaborate on your thinking that the Swiss National Bank made a mistake as I value your opinion highly. To me it seems quite a rational decision as their balance sheet was quickly moving towards 100% of Swiss GDP with no signs that the accumulation of Euros would stop. The Eurozone is at least another 2 or 3 years away from becoming competitive and an aggressive QE by the ECB that rage for years seems inevitable. Therefore, it seems very realistic that the SNB would had to buy trillions of Euros to protect a country with a GDP of some 600bln. I just don't know if such actions would have been sustainable for such a small country. Wouldn't this have been too risky for Switzerland?
Best, Simon
Best, Simon
11
The current drop in oil prices may be temporary but is contributing to sending us toward deflation. Unfortunately with the GOP in charge of Congress and our budget we can expect serious dislocations in our markets. This will be due to their risky ideologically driven legislation. Including more tax cuts and loopholes, handicapping regulation and allowing banks to write laws that only benefit a few at the expense of everyone else. I just hope we don't bail these same banks out again without taking them over when their greedy schemes lead to another collapse.
16
The current drop in oil prices does not contribute toward deflation.
It keeps money in the pockets of American consumers, who will spend it to stimulate our economy. That is instead of sending it overseas to be hoarded by oil oligarchs.
It is a huge economic stimulus, that costs the government nothing. It is the best thing that could happen to our economy.
It keeps money in the pockets of American consumers, who will spend it to stimulate our economy. That is instead of sending it overseas to be hoarded by oil oligarchs.
It is a huge economic stimulus, that costs the government nothing. It is the best thing that could happen to our economy.
7
'Just printing money and stuffing it into the banks does nothing; it just sits there.'
Why do serious economists continue to perpetuate the fiction that governments increase the money supply by printing more currency, when in fact it is done through purchase of securities by central banks or by changes to reserve requirements.
There is already enough economic ignorance in the world, as Dr. Krugman frequently points out.
Why do serious economists continue to perpetuate the fiction that governments increase the money supply by printing more currency, when in fact it is done through purchase of securities by central banks or by changes to reserve requirements.
There is already enough economic ignorance in the world, as Dr. Krugman frequently points out.
3
You are talking about two very different kinds of money. When the central bank prints money to buy securities, that's real money that cannot be destroyed within the private sector, it is always in someone's bank account. If it buys government bonds and the government spends the money, this real money gets into the private sector, and if properly spent, gets to those who need it and will spend it, not to those who do not need it and will speculate with it.
If reserve requirements are changed and banks can lend more than they have, that not only creates money, funny money, but simultaneously creates debt, anti-money, e.g. subprime mortgages. When funny money meets anti-money, they both vanish. And all this happens within the private sector
If reserve requirements are changed and banks can lend more than they have, that not only creates money, funny money, but simultaneously creates debt, anti-money, e.g. subprime mortgages. When funny money meets anti-money, they both vanish. And all this happens within the private sector
5
The FED does print money, albeit through placing an order for currency from the US treasury, primarily for the purpose of purchasing government securities. The additional creation of dollars was readily apparent during the 2008 financial meltdown, when the FED added several trillion dollars to their balance sheet.
Absent the authority to create money, the FED would not have had the necessary tools required to deal with the 2008 liquidity trap.
Moreover, not only does the FED "print" money, but private banks also have the authority to create dollars today based entirely on the FED's margin requirements, a fact which you did mention.
The following link is to a primer on FED operations courtesy of the SF FED:
http://www.frbsf.org/cash/
Absent the authority to create money, the FED would not have had the necessary tools required to deal with the 2008 liquidity trap.
Moreover, not only does the FED "print" money, but private banks also have the authority to create dollars today based entirely on the FED's margin requirements, a fact which you did mention.
The following link is to a primer on FED operations courtesy of the SF FED:
http://www.frbsf.org/cash/
I really can't say that I understand the causes and effects of deflation but neither do the conservative politicians. The difference between us is that I am willing to accept the position of experts like Paul Krugman. Unfortunately, the conservatives aren't smart enough to understand their limitations.
52
You admit you don't understand deflation, which is simply the universal decrease in the cost of goods caused by decreasing demand, and/or money supply, so your ignorance means conservatives can't possibly get a simple economic definition (opposite of inflation) and you blindly accept the political opinions of others like Krugman, but obviously you're not willing to accept the position of experts who won the Nobel Prize in economis in the last twenty years who are conservative like Robert Shiller, Gary Becker, George Stigler, Robert Mudell, Ronald Coase, or Milton Friedman who won it in 1976 and has since died.
Nah, you're so smart that you don't know a simple definition, but brilliant enough to discern between competing Nobel Prize winners in economics. You are clearly on top of things.
Nah, you're so smart that you don't know a simple definition, but brilliant enough to discern between competing Nobel Prize winners in economics. You are clearly on top of things.
"This in turn sent the Swiss franc soaring, with devastating effects on the competitiveness of Swiss manufacturing... '
Switzerland makes things? Who knew.
Aside from Army Knives, over priced chocolate, and watches that no one with a smart phone wears anymore, I can't think of a single thing.
Cars, nope. Airplanes, nope, computers, nope. TV sets, nope. Furniture. nope.
What is the basis of their economy?
Switzerland makes things? Who knew.
Aside from Army Knives, over priced chocolate, and watches that no one with a smart phone wears anymore, I can't think of a single thing.
Cars, nope. Airplanes, nope, computers, nope. TV sets, nope. Furniture. nope.
What is the basis of their economy?
Switzerland has a strong Chemical and Pharmaceutical industry, you might know Novartis and Roche, two Swiss companies. No cars are made in the country, but many car parts especially for German brands. Besides car parts, there is a strong mechanical and electrical industry. I'm sure you know the food company Nestle, also a Swiss company (although of course not much of their output is actually made in the country). You mentioned the watches, which by the way are still being bought by people with style.
All in all, Switzerland has much more manufacturing per capita than the U.S.
All in all, Switzerland has much more manufacturing per capita than the U.S.
17
The Swiss are also very strong in precision machine tools. Companies like Heule and Reishauer are amongst the best in the world. The same skills that make a fine timepiece can and are used for industrial applications.
1
In 2011, Switzerland it was ranked as the wealthiest country in the world in per capita terms. It has the world's nineteenth largest economy by nominal GDP and the thirty-sixth largest by purchasing power parity. It is the twentieth largest exporter, despite its size. Switzerland has the highest European rating in the Index of Economic Freedom. Switzerland is home to several large multinational corporations. The largest Swiss companies by revenue are Glencore, Gunvor, Nestlé, Novartis, Hoffmann-La Roche, ABB, Mercuria Energy Group and Adecco. SWITZERLAND'S MOST IMPORANT ECONOMIC FACTOR IS MANUFACTURING. Manufacturing consists largely of the production of specialist chemicals, health and pharmaceutical goods, scientific and precision measuring instruments and musical instruments. The largest exported goods are chemicals (34% of exported goods), machines/electronics (20.9%), and precision instruments/watches (16.9%). Exported services amount to a third of exports. The service sector – especially banking and insurance, tourism, and international organisations – is another important industry for Switzerland.
Want to know more? Try Wikipedia to overcome any possible arrogance.
Want to know more? Try Wikipedia to overcome any possible arrogance.
2
Virtue is not vice. Virtue is virtue and vice is vice. No one who tells you to park your virtues at the door for money reasons can be trusted to serve the people's interests, even were the arguments sound, let alone when they're so replete with fallacies.
The Swiss central bank made the error of rigging the franc to the euro, an unsound currency. Presumably, they've decided to abandon the trade because it was making losses. America could learn something from that sort of discipline.
Ordinary Swiss people will not be sorry to suddenly find their money buys more of everything the rest of the world has to offer.
It is people whose money is being inflated away to nothing, as is now happening in so many countries around the world, who are paying the price for vice foisted upon them by unvirtuous bankers and corrupt governments.
The Swiss central bank made the error of rigging the franc to the euro, an unsound currency. Presumably, they've decided to abandon the trade because it was making losses. America could learn something from that sort of discipline.
Ordinary Swiss people will not be sorry to suddenly find their money buys more of everything the rest of the world has to offer.
It is people whose money is being inflated away to nothing, as is now happening in so many countries around the world, who are paying the price for vice foisted upon them by unvirtuous bankers and corrupt governments.
4
Swiss money may be worth more, but in-flows will be reduced because Swiss goods will be less competitive (i.e. too expensive) and so the Swiss will have less to spend in the long run. Your analysis only applies to their current money stock, which is relatively small given Switzerland's small size (which means this long run could be relatively brief depending on their rate of foreign consumption).
The more fundamental point is that economies are vastly complex systems that Calvinistic morality just does not apply to; because these systems guide and comprise human behavior it's easy to equate human morality with economic insight but that is wrong: As Keynes noted, this is a fallacy of composition.
There are no simple answers in questions like this. I am not sure there are even right and wrong answers. But evidence - and the rules of logic - suggest that some answers are better, perhaps much better, than others, and PK's analysis is probably as good as the state of the art admits. Charlatans do not cite cases and evidence; every almost every PK article has more references or links than time allows me thoroughly check.
The more fundamental point is that economies are vastly complex systems that Calvinistic morality just does not apply to; because these systems guide and comprise human behavior it's easy to equate human morality with economic insight but that is wrong: As Keynes noted, this is a fallacy of composition.
There are no simple answers in questions like this. I am not sure there are even right and wrong answers. But evidence - and the rules of logic - suggest that some answers are better, perhaps much better, than others, and PK's analysis is probably as good as the state of the art admits. Charlatans do not cite cases and evidence; every almost every PK article has more references or links than time allows me thoroughly check.
The SNB's "error" worked for three years to keep its currency from becoming so strong that neighboring countries couldn't afford to do business with the Swiss. That's no error. The weakening Euro and strengthening CHF looks good to the short-sighted, but in the long run it's disastrous for the Swiss economy. Sure, your Franc buys more, but it also means you're earning less as Swiss firms are struggling to sell their goods and services to their neighbors. In economic terms, no country is an island.
Honestly, the hubris the professor displays here is incredible. The Swiss discontinued their peg to the Euro because the EU will step up printing money and weaken the Euro further. The cost to the Swiss: Buying more Euros and losing money on the value of their Euro reserves is too expensive. They pulled the plug before it got completely out of hand.
Yes, further consideration is needed regarding raising interest rates now (in the U.S.). But this is because we ourselves have printed so much money to bail out banks. Bank earnings are mediocre lately because the well is dry. The next step might be negative interest rates here in the U.S. Not out of the question if 10 year rates for Spanish bonds are at 1.55%
Yes, further consideration is needed regarding raising interest rates now (in the U.S.). But this is because we ourselves have printed so much money to bail out banks. Bank earnings are mediocre lately because the well is dry. The next step might be negative interest rates here in the U.S. Not out of the question if 10 year rates for Spanish bonds are at 1.55%
4
"What you need to understand is that all the usual rules of economic policy changed when financial crisis struck in 2008; we entered a looking-glass world, and we still haven’t emerged." Dr. Krugman writes today.
Yes: Many ideas as to what can help, were reversed from previous ideas. Austerity became a wrong thing, stimulus became good. Normal interest rates became wrong. But deflation remained a 'bad' thing. Isn't it instead bad when upon entering such a 'looking-glass world'... the government keeps picking and choosing what's 'bad' or 'good'?
As a result of policies chosen, the rich have become steadily richer, and at the expense of the standard of living. For people below 90% level, many have no job at all even after 6 years!
We could infer something might be wrong with the combination of policies.
so a reappraisal of what's right... is needed.
As for them changing to a -0.75 negative interest rate in Switzerland, on deposits, this is actually what is needed if there is much deflation), even if they did this to fight deflation. Does Prof. Krugman know the real thinking behind this move by the Swiss central bank? Could it be applied in the U.S.?
If so, extra money banks get, could be applied to REDUCE principals on little peoples' loans. If they did that, then they wouldn't be so apt to delay buying if they think they can buy later at a lower price. Deflation wouldn't be detrimental to a well-operating economy. Dr. Krugman's attitude on deflation needs reappraising.
Yes: Many ideas as to what can help, were reversed from previous ideas. Austerity became a wrong thing, stimulus became good. Normal interest rates became wrong. But deflation remained a 'bad' thing. Isn't it instead bad when upon entering such a 'looking-glass world'... the government keeps picking and choosing what's 'bad' or 'good'?
As a result of policies chosen, the rich have become steadily richer, and at the expense of the standard of living. For people below 90% level, many have no job at all even after 6 years!
We could infer something might be wrong with the combination of policies.
so a reappraisal of what's right... is needed.
As for them changing to a -0.75 negative interest rate in Switzerland, on deposits, this is actually what is needed if there is much deflation), even if they did this to fight deflation. Does Prof. Krugman know the real thinking behind this move by the Swiss central bank? Could it be applied in the U.S.?
If so, extra money banks get, could be applied to REDUCE principals on little peoples' loans. If they did that, then they wouldn't be so apt to delay buying if they think they can buy later at a lower price. Deflation wouldn't be detrimental to a well-operating economy. Dr. Krugman's attitude on deflation needs reappraising.
Again we see that the extent of the '07-08 crisis is not fully understood. Psychology and behavior has been changed for a least a generation and possibly longer. People no longer want to be in debt. Credit expansion is the life blood of the modern financial system. Finance must shrink further as a percentage of the overall economic pie. Excessive trading, derivatives and the globalization of finance is now a detriment to stability and growth.
4
We've just had two black swan events in a very short period of time:
1) The Swiss currency move
2) OPEC's maintenance of its production quota
While seemingly unrelated, these events are both capitulations by central planners to forces outside their control. They are indications that the world order put in place by the global financial elites following the financial crisis is coming unraveled very quickly. Maybe deflation is merely one result of a system based on artificially low interest rates and money printing that has exceeded its structural limits.
1) The Swiss currency move
2) OPEC's maintenance of its production quota
While seemingly unrelated, these events are both capitulations by central planners to forces outside their control. They are indications that the world order put in place by the global financial elites following the financial crisis is coming unraveled very quickly. Maybe deflation is merely one result of a system based on artificially low interest rates and money printing that has exceeded its structural limits.
8
Do you reach for an arcane explanation of something rather simple because it has the delicious feature of a failure by the “global financial elites”? It makes more sense to say that the Swiss found it too expensive to support a euro which had begun to flounder because too many European governments made the mistake of responding to recession by using austerity measures. It was the same mistake which conservatives in the United States have made, but our economy (so far) is much more resilient.
As far as OPEC’s declining to reduce production, this was a Saudi decision to maintain market share. The Saudi decision came when they were surprised that the oil and gas oversupply was not met by production cutbacks by Russia and others, including the United States. In past years, a market glut was met by sharing in reduced output.
This is not to say that Saudi Arabia would mind if some marginal producers in the West are put out of business permanently by the drop in crude prices.
As far as OPEC’s declining to reduce production, this was a Saudi decision to maintain market share. The Saudi decision came when they were surprised that the oil and gas oversupply was not met by production cutbacks by Russia and others, including the United States. In past years, a market glut was met by sharing in reduced output.
This is not to say that Saudi Arabia would mind if some marginal producers in the West are put out of business permanently by the drop in crude prices.
2
".....the world order..."? It seems that the problem was that there was no "world order" put in place, just arguments over whether austerity or stimulus works best. The US stimulated mildly (perhaps too mildly) and is the only economy that's come out ahead.
Dang that Obama, he made things work by going against Republicans and the rest of the world! What we need is an austerity expert to drag us into Republican hell! NOT!
Dang that Obama, he made things work by going against Republicans and the rest of the world! What we need is an austerity expert to drag us into Republican hell! NOT!
How strong are our economies when interest rates are near zero, and in the case of Switzerland, negative?
The stock market has doubled since 2008 but where would it trade if short-term interest rates were a more normal 4% to 5% and long-term rates 6% to 7%? Tanked, I am sure.
The question is why? The answer is soft demand, except for luxury goods. And therein lies another answer - 90% of our population has reached the point where household income growth barely keeps pace with basic household expenses.
John Harwood provides a key metric in a recent article. Median family income in 1979 was $58,573 in current dollars and rose to $63,815 in 2013. If the growth rate had been the same as 1947 to 1979, it would have been $124,000, nearly double. That’s a lot of lost purchasing power.
The stock market has doubled since 2008 but where would it trade if short-term interest rates were a more normal 4% to 5% and long-term rates 6% to 7%? Tanked, I am sure.
The question is why? The answer is soft demand, except for luxury goods. And therein lies another answer - 90% of our population has reached the point where household income growth barely keeps pace with basic household expenses.
John Harwood provides a key metric in a recent article. Median family income in 1979 was $58,573 in current dollars and rose to $63,815 in 2013. If the growth rate had been the same as 1947 to 1979, it would have been $124,000, nearly double. That’s a lot of lost purchasing power.
28
Very trenchant observations. Maybe you can unravel this for me: if inflation is under control, as Krugman and the deflation alarmists keep insisting, then why should
"... household income growth barely keep[s] pace with basic household expenses "?
Inflation is NOT under control, if wages are stagnating more than the price of goods and services.
None of you folks do your own shopping, do you? Maybe consumer demand is down because. in the name of the global economy, we are having to spend so much on shoddy products. If I have to buy 3 coffeemakers in 2 years because the heating element burns out and China does not make replacement parts available, if clothing is put together with non-existent seam allowances such that it falls apart in two or three wearings, and (most significant) the cheap-food system that has underpinned our hard-goods economy for 60 years has now leveled out in productivity and is beginning to feel its externalized environmental and health costs, then inflation is not under control, even if "prices" are.
"... household income growth barely keep[s] pace with basic household expenses "?
Inflation is NOT under control, if wages are stagnating more than the price of goods and services.
None of you folks do your own shopping, do you? Maybe consumer demand is down because. in the name of the global economy, we are having to spend so much on shoddy products. If I have to buy 3 coffeemakers in 2 years because the heating element burns out and China does not make replacement parts available, if clothing is put together with non-existent seam allowances such that it falls apart in two or three wearings, and (most significant) the cheap-food system that has underpinned our hard-goods economy for 60 years has now leveled out in productivity and is beginning to feel its externalized environmental and health costs, then inflation is not under control, even if "prices" are.
4
Exactly! The real "job creators", aka consumers have been marginalized by the mythical Republican "job creators".
Those Republican folks are great at building personal pyramids of gold for themselves and a few pay-to-play friends, but only at the expense of 'milking' and grabbing the 'pools of money' and assets accumulated through the hard work of generations of past workers.
Republicans specialize in exploitation and destruction, not innovation and construction.
Society simply wasn't built by carpetbaggers and ego's bent on solving 'short term problems' with short sighted carpetbagging solutions.
Those Republican folks are great at building personal pyramids of gold for themselves and a few pay-to-play friends, but only at the expense of 'milking' and grabbing the 'pools of money' and assets accumulated through the hard work of generations of past workers.
Republicans specialize in exploitation and destruction, not innovation and construction.
Society simply wasn't built by carpetbaggers and ego's bent on solving 'short term problems' with short sighted carpetbagging solutions.
15
@Radx28: Exactly! "...but only at the expense of 'milking' and grabbing the 'pools of money' and assets accumulated through the hard work of generations of past workers."
And the first pools and assets in the new Congress' sights? Social Security! In 1983, the Reagan-Greenspan reform raised SS taxes. That made the federal budget look better. Then G.W. Bush claimed that "the 'merican people've been overcharged," and cut the upper income tax brackets and capital gains and corporate taxes. Then Rs frowned and said, "There's not enough money for SS." They'll cut SS benefits. That'll make the budget better. And some future G.W. Bush will claim, "the 'merican people've been overcharged." And that will justify another upper-income tax cut. Lather. Rinse. Repeat. The Reagan-Greenspan reform was the beginning of a series of long cons, and we working folks are the marks.
And the first pools and assets in the new Congress' sights? Social Security! In 1983, the Reagan-Greenspan reform raised SS taxes. That made the federal budget look better. Then G.W. Bush claimed that "the 'merican people've been overcharged," and cut the upper income tax brackets and capital gains and corporate taxes. Then Rs frowned and said, "There's not enough money for SS." They'll cut SS benefits. That'll make the budget better. And some future G.W. Bush will claim, "the 'merican people've been overcharged." And that will justify another upper-income tax cut. Lather. Rinse. Repeat. The Reagan-Greenspan reform was the beginning of a series of long cons, and we working folks are the marks.
Another brilliant move by the Swiss. They recognize, correctly that the Euro zone is in decline, one in which it will not soon exit. The Swiss are disciplined, which is not something you can use to describe the majority of Euro one members.
9
I offer a strangely counterintuitive prayer for the conservative mind. I pray they find the language to install the policies they have been opposing, by finding the language to call it their own; let us give them the Orwellian tools, so we suffer no longer under their ideological binge. It's ok. Truth is not so fragile to be bent forever by the puny minds of lost boys, too weary to face themselves.
19
Self interest is the ultimate bender of truth. The party of "me" uses it well to impose their Orwellian twist on reality.
In this netherworld terms like "we, the people" only make sense when replaced with the phrase "me, my relatives, and my pay-to-play friends", as the reversion to the most animal behaviors of our ancestry dominate all thinking.
In this netherworld terms like "we, the people" only make sense when replaced with the phrase "me, my relatives, and my pay-to-play friends", as the reversion to the most animal behaviors of our ancestry dominate all thinking.
6
Perfect, I love it. How about: "Obamacare is cutting Healthcare spending, and this is causing deflation! We must fight it by spending more on the military, and starting a war with ISIS and North Korea!"
This would solve the deflationary spiral. To people that do not understand fundamentals, any idea looks good.
This would solve the deflationary spiral. To people that do not understand fundamentals, any idea looks good.
Lower interest rates work better, taking all into account. However, intra-society it really depends on who you are.
Example: Civil service workers retire with rather fixed pensions. Workers in private industry might have retired with seemingly adequate capital, but low interest rates force them to invest in certain assets which have some degree of risk.
As we speak it appears that algorithmic trading has shaken the stock market. Illogical activities may actually be profitable for the machine driven traders, but their gains come at the expense of the small fry, individual investor. Lower interest rates should have also been coupled with more regulations- but good luck on that!!!
Example: Civil service workers retire with rather fixed pensions. Workers in private industry might have retired with seemingly adequate capital, but low interest rates force them to invest in certain assets which have some degree of risk.
As we speak it appears that algorithmic trading has shaken the stock market. Illogical activities may actually be profitable for the machine driven traders, but their gains come at the expense of the small fry, individual investor. Lower interest rates should have also been coupled with more regulations- but good luck on that!!!
15
The retiring baby boomers represent a humongous pool of wealth that is a prime target for 'high end wealth seekers' (aka Republican puppet masters).
They won't stop until either government intervenes or the 'mine' runs dry.
The current 'kink' in civilization is all wrapped up in the fact that technology is challenging and trodding over "traditional thinking and institutions" that have driven social values for thousands of years. This, along with the attendant implications of change, has made 'more conservative' people (around the world) uncertain and fearful of the future. Their instinctive reaction is to 'dig in', retrench, and fight like crazy to maintain the old ways.
Fortunately, "the millennial generation" is more ready to move on with new ideas and new ways. The prescient question is whether or not human biology itself is up to the task of keeping up with the speed and volume of change.
They won't stop until either government intervenes or the 'mine' runs dry.
The current 'kink' in civilization is all wrapped up in the fact that technology is challenging and trodding over "traditional thinking and institutions" that have driven social values for thousands of years. This, along with the attendant implications of change, has made 'more conservative' people (around the world) uncertain and fearful of the future. Their instinctive reaction is to 'dig in', retrench, and fight like crazy to maintain the old ways.
Fortunately, "the millennial generation" is more ready to move on with new ideas and new ways. The prescient question is whether or not human biology itself is up to the task of keeping up with the speed and volume of change.
4
Thanks for the clarifications of recent European monetary policy. The entire world seems to be in a huge fat mess of its own making, and my fear is contagion to the US.
Already we are seeing the relaxation of key financial regulations set in place to prevent another speculation meltdown, tab to be paid by the US taxpayer. If another such crisis hits, in a world already stagnating because of bad policies, our interconnected economies spell huge trouble for us, young and old.
More jobs lost, and more losses in retiree savings. And the right just itching to cut social programs to the bone while the wealthy do what they've always done: prosper no matter what.
Already we are seeing the relaxation of key financial regulations set in place to prevent another speculation meltdown, tab to be paid by the US taxpayer. If another such crisis hits, in a world already stagnating because of bad policies, our interconnected economies spell huge trouble for us, young and old.
More jobs lost, and more losses in retiree savings. And the right just itching to cut social programs to the bone while the wealthy do what they've always done: prosper no matter what.
30
The fear is justified. There but for a few Democrats, and wise bureaucrats, we've been hanging on the brink of a World depression for over six years.
1
Neither hyperinflation nor deflation is good. Nor stagflation. Walking the Goldilocks path in normal time is hard enough. One theory that seems to have some credence is the belief Super Mario finally has to act next week because his credibility is at stake. Talking down the Euro, which he has done in the past several years, will no longer work. So the Swiss has decided to get ahead of the announcement.
I don't know what to learn from the Swiss though per your last statement, Prof. Krugman. Indeed they are cautious money manager but the problem with the Swiss is that they are a small country amid a bunch of conquering cousins at a wedding party. On one extreme, you have Germany, the rich uncle who is controlling the family account; on the other, you have Greece and Italy who behave like a spendthrift nephew. Of course, the U.S. has her own conquering family. Some posters to this column speak as though Republicans weren't human - and I am sure many Republicans feel the same way toward their fellow progressive country folks.
The problem is that the current problem worldwide is man-made, driven by individual ambition. In the U.S., some people hate the president so much that they are willing to wreck the economy to deny President Obama's. No need to say more about Russia. The Europe is a feuding family. The more political in S America, the worse the country. Like it or not, only Japan and China, regardless of their politics, have a chance because they have the will to do it.
I don't know what to learn from the Swiss though per your last statement, Prof. Krugman. Indeed they are cautious money manager but the problem with the Swiss is that they are a small country amid a bunch of conquering cousins at a wedding party. On one extreme, you have Germany, the rich uncle who is controlling the family account; on the other, you have Greece and Italy who behave like a spendthrift nephew. Of course, the U.S. has her own conquering family. Some posters to this column speak as though Republicans weren't human - and I am sure many Republicans feel the same way toward their fellow progressive country folks.
The problem is that the current problem worldwide is man-made, driven by individual ambition. In the U.S., some people hate the president so much that they are willing to wreck the economy to deny President Obama's. No need to say more about Russia. The Europe is a feuding family. The more political in S America, the worse the country. Like it or not, only Japan and China, regardless of their politics, have a chance because they have the will to do it.
8
The US has proven itself to be a stronger federation than the European Union because some smart people in our past were able to overcome conservative objections and build reasonably comprehensive and flexible government institutions.
Progressives build the 'sacred cows' that conservatives milk. We need more building and less milking.
Progressives build the 'sacred cows' that conservatives milk. We need more building and less milking.
2
"So let’s learn from the Swiss."
The Obama administration and the Federal Reserve have been on the right course to avoid a Second Great Depression. They have proven they are economically savvy, capable of reading economic events and changes, and able to steer our economy on the right direction.
The Republican congress and its conservative think tank supporters have been numb to reality and not open to learning. They are locked into a conservative ideological view of America and the world.
Republicans still want to balance the budget by cutting government spending, cutting social programs, cutting education, cutting health care...and most especially, cutting taxes for the wealthy.
Trickle down Reaganomics has been and is always the Republican answer no matter its proven failed track record. Since 1980, Republican trickle down policies have done nothing more than produce capital flowing up to the wealthy.
Republicans have learned nothing from Gov. Brownback's disastrous "cut-taxes Reaganomics" policies in Kansas, they will learn nothing from the Swiss.
The Obama administration and the Federal Reserve have been on the right course to avoid a Second Great Depression. They have proven they are economically savvy, capable of reading economic events and changes, and able to steer our economy on the right direction.
The Republican congress and its conservative think tank supporters have been numb to reality and not open to learning. They are locked into a conservative ideological view of America and the world.
Republicans still want to balance the budget by cutting government spending, cutting social programs, cutting education, cutting health care...and most especially, cutting taxes for the wealthy.
Trickle down Reaganomics has been and is always the Republican answer no matter its proven failed track record. Since 1980, Republican trickle down policies have done nothing more than produce capital flowing up to the wealthy.
Republicans have learned nothing from Gov. Brownback's disastrous "cut-taxes Reaganomics" policies in Kansas, they will learn nothing from the Swiss.
26
"on the right course to avoid a Second Great Depression"
No. The 99% are mired in a Second Great Depression.
Jobs and income are gone on a Depression scale.
Only the wealthy have been able to disconnect themselves from the Depression afflicting everyone else, and just pretend it is not there.
No. The 99% are mired in a Second Great Depression.
Jobs and income are gone on a Depression scale.
Only the wealthy have been able to disconnect themselves from the Depression afflicting everyone else, and just pretend it is not there.
4
'Trickle down' was a typical Republican 'marketing jingle' designed to convince non-thinkers that 'sucking wealth upward' was the key to wealth distribution.
By inventing a jingle that reflects a common sense analogy like the production of rain, Republicans successfully conned large groups of people. Water evaporating into clouds that rain down to enrich the crops is such a 'magical', mystical, and beautiful way to rename 'highway robbery'.
Seek truth, as opposed to capitulating to the idea that our animal selves not our human selves are a God's favorite part of its creation.
By inventing a jingle that reflects a common sense analogy like the production of rain, Republicans successfully conned large groups of people. Water evaporating into clouds that rain down to enrich the crops is such a 'magical', mystical, and beautiful way to rename 'highway robbery'.
Seek truth, as opposed to capitulating to the idea that our animal selves not our human selves are a God's favorite part of its creation.
2
The Swiss do not believe in funny money of Krugman, Et Al.
That is one of the secrets to their wealth!
That is one of the secrets to their wealth!
9
to R in N.Y.: disagree with you. Your characterization of Krugman's approach as "funny money" is reductio ad absurdum. The Swiss National Bank's and the governance of this country is a balance of social solidarity and conservative management of the common weal backed by a democratic, educated, disciplined population. This balance is threatened by internal forces from the right of the political spectrum. In the USA the governance balance has been grossly overcome from the right and has become an oligarchic republic bent on undermining the founding principles and Constitution of a great nation. Sadly.
11
Central banks, under political pressures from the likes of Krugman Et Al., manipulate their fiat currency as if it were plastic. In the credit card sense, currency has become plastic.
While this brings short term balm to the insatiable voters, this brings long term harm to real economies.
Of course, this view is very unpopular.
Too bad!
While this brings short term balm to the insatiable voters, this brings long term harm to real economies.
Of course, this view is very unpopular.
Too bad!
2
The secret to their wealth is the building a society that's designed like a clock. It's small enough, and isolated enough to convince the cogs, and gears, and winders keep faithfully operate within their roles across generations.
As a machine, it works well, but it's not for everyone, and like all current societies on the planet, it is ultimately co-dependent on others.
As a machine, it works well, but it's not for everyone, and like all current societies on the planet, it is ultimately co-dependent on others.
Do you seriously think the Swiss're paying the price yet ? Profitability of good products that are affected by the strength someone else's currency should be allowed to run their course for a little while.
I think the purpose of currency value strengthening when your industrial AND financial economy is strong is to actually weaken your economy by reducing the price-(not product)-competitiveness of your wares.
The net weakening is good for your partners and not-so-bad for your own citizens. Because : a. You're already well off because of a few years of economic strength and b. It gives your economy some time to cool off.
How big is the Swiss economy anyway ? It must be quite hard to reverse deflation because there are not enough people to cause it.
I think deflation is broadly good for the middle and weaker classes. People can afford more and though tax receipts decline, people's lives become easier, in selected areas.
The important thing is to ensure that the "gains" from deflation are directed in the right areas. Government agencies can actually borrow from the market and invest in areas of higher demand, like health or education or transport.
I think the medium term prospect of deflation is good for honest people. Though it also could fuel the stock market bubble in 8 -16 months.
I think the purpose of currency value strengthening when your industrial AND financial economy is strong is to actually weaken your economy by reducing the price-(not product)-competitiveness of your wares.
The net weakening is good for your partners and not-so-bad for your own citizens. Because : a. You're already well off because of a few years of economic strength and b. It gives your economy some time to cool off.
How big is the Swiss economy anyway ? It must be quite hard to reverse deflation because there are not enough people to cause it.
I think deflation is broadly good for the middle and weaker classes. People can afford more and though tax receipts decline, people's lives become easier, in selected areas.
The important thing is to ensure that the "gains" from deflation are directed in the right areas. Government agencies can actually borrow from the market and invest in areas of higher demand, like health or education or transport.
I think the medium term prospect of deflation is good for honest people. Though it also could fuel the stock market bubble in 8 -16 months.
3
Left to it's own devices, 'raw capitalism' will work. The problem is that like the periodic plagues that used to strike at random intervals, the physics of our universe is driven by chaos, and both plagues and human systems follow the rules of chaos.
On the other hand, for some strange reason, humans seek order within the chaos. Thus, over time, we've learned to build edifices and institutions to thwart the forces of chaos, particularly those that occur within the course of human history. We get better at thwarting (aka more civilized) as we document history, and gather knowledge to understand the way that things work.
In this sense, medicine, mechanized agriculture, and governance, and government regulation all have something in common, that is, they are all attempts to moderate and even defeat the death and destruction that inevitably accompanies chaos.
Republicans would have us live in the lottery of chaos.........particularly those who have accumulated enough wealth to believe that they, personally, have risen above chaos (or can at least buy their way out of it).
R
On the other hand, for some strange reason, humans seek order within the chaos. Thus, over time, we've learned to build edifices and institutions to thwart the forces of chaos, particularly those that occur within the course of human history. We get better at thwarting (aka more civilized) as we document history, and gather knowledge to understand the way that things work.
In this sense, medicine, mechanized agriculture, and governance, and government regulation all have something in common, that is, they are all attempts to moderate and even defeat the death and destruction that inevitably accompanies chaos.
Republicans would have us live in the lottery of chaos.........particularly those who have accumulated enough wealth to believe that they, personally, have risen above chaos (or can at least buy their way out of it).
R
4
I only half agree with you.
It's not strange that we seek order out of chaos. We seek to survive in the chaos that surrounds us.
It's not that the Republicans seek to rise above it. I understand their division of the world into the weak and the strong. I just don't condone it beyond a point.
There's no dearth of conspiracy movies, -theories or reasoning that shows us how to react to this. I think it's provable that if we as a species were to act in our *group* interests, we would act in not very different ways.
Viz., not that many things would be different. But some things would be very very different.
I don't grudge the powerful their desire to stay in power. Because equity is much harder to maintain in a system that is designed to expand in different directions with different speeds.
But I'll be damned if I am told to propagate virtue without proof of its pervasive acceptance.
The rules of neobiology are well known : Be nice. But hit back hard.
Of course there's a worse example from the Bible :-D , do unto others as you would be done by . :-)
We exist to make order out of chaos. Let us know its boundaries, but never stop tending towards it ! :-)
It's not strange that we seek order out of chaos. We seek to survive in the chaos that surrounds us.
It's not that the Republicans seek to rise above it. I understand their division of the world into the weak and the strong. I just don't condone it beyond a point.
There's no dearth of conspiracy movies, -theories or reasoning that shows us how to react to this. I think it's provable that if we as a species were to act in our *group* interests, we would act in not very different ways.
Viz., not that many things would be different. But some things would be very very different.
I don't grudge the powerful their desire to stay in power. Because equity is much harder to maintain in a system that is designed to expand in different directions with different speeds.
But I'll be damned if I am told to propagate virtue without proof of its pervasive acceptance.
The rules of neobiology are well known : Be nice. But hit back hard.
Of course there's a worse example from the Bible :-D , do unto others as you would be done by . :-)
We exist to make order out of chaos. Let us know its boundaries, but never stop tending towards it ! :-)
1
The wealthy are worried about one thing, their wealth. Giving all that low tax or no tax money to the rich means money did not go thru the system, they keep and hoard it. So there was less to churn, producing less jobs, opportunities, growth of markets, development. People have less money, they spend less.
It's time to stop listening to the rich and powerful and do right for the society. The rich need to take their medicine and join the rest of us. I don't think it's going to happen because the Repubs are just puppets for the top 5%.
It's time to stop listening to the rich and powerful and do right for the society. The rich need to take their medicine and join the rest of us. I don't think it's going to happen because the Repubs are just puppets for the top 5%.
76
All true but we keep elected them. In the end, even the rich can't out run the markets. Switzerland is an example. Those hiding out in the Franc have a little less.
The REPUBLICANS are "just puppets for the rich"?? Have you paid attention to the political donations of the wealthiest zip codes in this country? Your off-the-cuff (and typical NYT reader) comment is 50 years out of date. So is your observation that "the rich' are "hoarding" their money and not putting it into the economy. Most people you would consider "rich" are small business owners, not trust fund babies, and their money is threaded throughout the economy in buildings, inventory, goods and services, and payroll.
Lets look at the bright side of a deflationary period. The explanations by the Republicans for not borrowing money when the amount to be repaid will be less than the amount borrowed should provide marvelous material.
Think now, the full faith and credit of the United States could be used to guarantee that your dollar today will get you back 95 cents in six months instead of the 91 cents a bank deposit will guarantee.
Now let us speculate on how that can be spun.
Think now, the full faith and credit of the United States could be used to guarantee that your dollar today will get you back 95 cents in six months instead of the 91 cents a bank deposit will guarantee.
Now let us speculate on how that can be spun.
57
That would be a delightful scenario, but unfortunately, the opposite is true. Inflation is the scenario in which one owes less than one borrows. In deflation, you borrow a dollar today, and next year, you owe the buying-power-equivalent of $1.01. An economy with almost $20 trillion in public debt should be incredibly leery of allowing deflation to take hold. Even a 1% change in inflation represents $200 billion dollars in public buying power lost to deflation.
1
The euro has to go. It has become a drag on the world economy and threatens political upheaval that would make the 1930s look tame and we know what happened in the 1940s. The U.S. should offer to help any sovereign nation that wants to disentangle from the euro to do so. A common currency is a good thing but in the political reality of Europe it needs to go up one level of abstraction to an electronic facility that converts currencies in any exchange in the moment. That's what credit cards and newer facilities like Apple Pay and PayPal can do and there is no reason the market can't accomodate a few more. Those tools will enable nations to have their own currencies and to manage inflation at a national level, where it belongs insulating the rest of us from austerity mongers and other nut cases.
1
Europe is run under a Rand Paulian economic model. It's just one of the many conservative models that rely on animal rather than human instincts to work.
Animal predation works well in nature because the underlying chaos of nature seems to seek a 'natural balance'.
The problem with the human animal (aka predator) is that, over time, we have sought and succeeded in finding ways to defer (if not defeat) chaos. For that reason, human predation, without proper governance and regulation, is a 'zero sum game'. We are the only species capable of destroying ourselves, and the planet.
My thinking is that we need more human and less animal instincts in charge of our future. If that's true, it was a big mistake for us to elect more animals.
Animal predation works well in nature because the underlying chaos of nature seems to seek a 'natural balance'.
The problem with the human animal (aka predator) is that, over time, we have sought and succeeded in finding ways to defer (if not defeat) chaos. For that reason, human predation, without proper governance and regulation, is a 'zero sum game'. We are the only species capable of destroying ourselves, and the planet.
My thinking is that we need more human and less animal instincts in charge of our future. If that's true, it was a big mistake for us to elect more animals.
3
Sorry Paul,
I never accepted the Keynsian article of faith that private virtue is public vice. If you want to squander your money that's fine. Leave other peoples money alone.
The real problem with Europe is socialism which is little more than a pyramid scheme. The EURO was a last grasp to perpetuate a fraud. Now it's unraveling.
I never accepted the Keynsian article of faith that private virtue is public vice. If you want to squander your money that's fine. Leave other peoples money alone.
The real problem with Europe is socialism which is little more than a pyramid scheme. The EURO was a last grasp to perpetuate a fraud. Now it's unraveling.
8
Actually, the problem with the euro has been reflective of the problems with the European Union: absent political unification in Europe, there are dissonant voices about what to do. Remember, the European Constitution was not ratified in 2005, so each member state continues to determine its own fiscal policy, while a central monetary policy is sporadically successful. Slowly, management of the relatively young currency (1993) improves.
The EU countries which have socialism, chose it and chose the degree to which it permeates their internal economies. The social obligations may make it harder for some European countries to maintain cash flow with shrinking tax revenues in a depressed economy, but you can’t blame that either on the euro or on the social structures freely chosen.
The EU countries which have socialism, chose it and chose the degree to which it permeates their internal economies. The social obligations may make it harder for some European countries to maintain cash flow with shrinking tax revenues in a depressed economy, but you can’t blame that either on the euro or on the social structures freely chosen.
1
What is hard to understand about people NOT buying stuff lowering the value of that stuff?
Tossing empty rhetoric around about socialism is meaningless.
Tossing empty rhetoric around about socialism is meaningless.
1
Given that we and others spent billions bombing people in the hopes that we can turn their hatred towards us into cooperation, I don't hold a lot of hope that in the economic arena, we can act with commonsense towards practical solutions.
23
I'd venture to say that humans, in general, have spent the equivalent of quadrillions bombing each other since they first left the trees on the plains of Africa.
It seems to be the way that we resolve cultural differences (aka arguments over ideas and stuff), and I, personally, don't have much hope that it will stop anytime before the 'intra-planetary wars' begin.
It seems to be the way that we resolve cultural differences (aka arguments over ideas and stuff), and I, personally, don't have much hope that it will stop anytime before the 'intra-planetary wars' begin.
2
Among the conservative Republicans are many fundamentalists. These are the believers who remain ever loyal to their views regardless of any facts.. Nothing can change their firmly held positions. No matter how many climatologists tell us the earth is warming the fundamentalists not only deny global change but often deride and mock those who are concerned about global warming. The fundamentalists cannot be convinced by archeologists or geologists that creation took more than a few days. And our economic fundamentalists have believed for all the Obama years that inflation would “take off.” Further they continue to believe, alas, for decades that the wealth of the wealthy will trickle down to the rest of us. The Republican fundamentalists are scary for the impact their views have on the functioning of our government. Their views often delay positive actions.
33
Conservatives are proof that humans are not truly conscious. In the end, we're all defined by the filters that we use to parse the reality that is delivered by our five (or six) senses.
Interestingly, as a species, we appear to have evolved with the ability to absolutely 'filter out' any sensory input that does not conform to our personal preconceived definition of reality.
I believe that conservatives are biased to strongly filter reality in order to conserve the energy that it would take to process information that will generate new neural pathways. They've simply learned that it's easier to focus on the task at hand if one strongly filters out the distractions of current or future reality.
It's a viable short-term strategy, but ultimately a drag on civilization, and most likely an evolutionary dead end. At the very least, they're going to have to 'speed up' the process of recognizing trends and recasting their 'filters' to incorporate valid, new facts in a timely manner.
There was a time when science could have been considered to be on a par with other forms of controversial thinking (aka mysticism, and religion), but that is no longer true. We have proven enough scientific ideas, both here on Earth and in the Cosmos at large, and it's time to give up the 'ghosts of humanity past' and accept the challenge of broadening our thinking. Cmon now, geometry is 5000 years old. It works!
Interestingly, as a species, we appear to have evolved with the ability to absolutely 'filter out' any sensory input that does not conform to our personal preconceived definition of reality.
I believe that conservatives are biased to strongly filter reality in order to conserve the energy that it would take to process information that will generate new neural pathways. They've simply learned that it's easier to focus on the task at hand if one strongly filters out the distractions of current or future reality.
It's a viable short-term strategy, but ultimately a drag on civilization, and most likely an evolutionary dead end. At the very least, they're going to have to 'speed up' the process of recognizing trends and recasting their 'filters' to incorporate valid, new facts in a timely manner.
There was a time when science could have been considered to be on a par with other forms of controversial thinking (aka mysticism, and religion), but that is no longer true. We have proven enough scientific ideas, both here on Earth and in the Cosmos at large, and it's time to give up the 'ghosts of humanity past' and accept the challenge of broadening our thinking. Cmon now, geometry is 5000 years old. It works!
3
Can you say: "deflationary vortex"? Naa, even with hip current jargon, the allure of making our economy act like the "family budget", which it isn't, just works too well for Republicans. Meh. Can you say "political vortex"?
23
Deflation happens in the 'family budget' when either the well dries up, the rain stops, or the family decides to 'starve itself to death' in order to save to buy food in the future.
It's hard to deal with the problem of dry wells, and droughts, but Republicans have figured out how to deal with the starvation decision. They've decided to starve and sacrifice other families in order to keep themselves, their relatives, and their pay-to-play friends well fed. Its all done with a little 'trickle flim-flam', and a strong conviction that the best predator deserves to live.
There is, as always, some truth to that, but as always, Republicans are short on humanity and foresight, and long on self interest and retrospect. It is we, as a species, that must become the best predator, not we, as individuals, and our predation must be balanced with a strong sense of harmony with nature (aka the forces of the Universe). Dissonance, ignorance, and self interest must be set aside in favor of the interests of the survival of the species. It is obvious that we are on our own, and we need to take responsibility for ourselves. We have the tools. We should be proud, honored, and committed to demonstrate that we are capable of using them.
If in the course of that, we prove that there is a God sobeit! In the meanwhile let's pursue a course that would make it proud.
It's hard to deal with the problem of dry wells, and droughts, but Republicans have figured out how to deal with the starvation decision. They've decided to starve and sacrifice other families in order to keep themselves, their relatives, and their pay-to-play friends well fed. Its all done with a little 'trickle flim-flam', and a strong conviction that the best predator deserves to live.
There is, as always, some truth to that, but as always, Republicans are short on humanity and foresight, and long on self interest and retrospect. It is we, as a species, that must become the best predator, not we, as individuals, and our predation must be balanced with a strong sense of harmony with nature (aka the forces of the Universe). Dissonance, ignorance, and self interest must be set aside in favor of the interests of the survival of the species. It is obvious that we are on our own, and we need to take responsibility for ourselves. We have the tools. We should be proud, honored, and committed to demonstrate that we are capable of using them.
If in the course of that, we prove that there is a God sobeit! In the meanwhile let's pursue a course that would make it proud.
1
. "All across America, families are tightening their belts and making hard choices. Now, Washington must show that same sense of responsibility."
President Obama, April 25, 2009
President Obama, April 25, 2009
I don't think you have to worry about raising rates any time soon in the US. But I do worry about what happens in Europe only because it threatens the world economy. Frau Merkel believes that Europe has to be toughened up. Some good old fashioned economic reality will straighten out the slackards who are living off the fat of the land. Trouble is it never works. This liberal, left wing nonsense about easy money is the only thing that does work and example after example should have made this point quite clear. Not only does the currency need inflating, it needs the assurance on the part of the central bank, that it will continue to inflate until it is clear economic growth is where it needs to be. One more minor thing; there is a point of no return. I don't mean to be dour, but unless this is done like now, it will be too late. The head of a country has too much responsibility not to admit they were wrong when they were wrong. But we have been down this road before, haven't we?
93
The Swiss might have divorced the franc from the euro, but the euros must be pouring into the Swiss stock market, which is the only one in Europe that is positive year-to-date. This is a reason the U.S. stock market can’t fall too much unless the economy really hits the skids – until then world capital is flowing into our stock markets as the global economy slows. Let’s hope the Fed doesn’t act prematurely on interest rates, by “tightening monetary policy,” when the whole world is deflating. Also, it’s time for Congress to quickly pass a fiscal stimulus plan that includes tax reform and infrastructure spending to ensure that our economy does not catch either the Asian or European flu?
17
I have every confidence that our elites will do the right thing - once they've tried everything else. If they're forced to.
14
Nope, no way. The 0.01% who hold the reins will ALWAYS have the means to divorce themselves from personal economic pain. They can build gated communities with private security and their own utilities; fly their own airplanes, and skim off the cream from the rest of society no matter how bad things get for the rest of us.
They have accumulated enough wealth to keep it up for generations. They have no stake in the welfare of the 99% and will NEVER act for the common good if it slows down their wealth accumulation one iota.
Watvh the movie Elysium--we are already there.
They have accumulated enough wealth to keep it up for generations. They have no stake in the welfare of the 99% and will NEVER act for the common good if it slows down their wealth accumulation one iota.
Watvh the movie Elysium--we are already there.
So what's the answer ... competitive currency debasement? Wasn't that the " fix " that was supposed to cope with the global deflation of the early 1930's?
1
We have to look at the risk of deflation through the eyes of the wealthy, because the United States is now a nation by, for and of the rich. Do the uber rich fear deflation? I'm not so sure. I know that the rich hate inflation eating away the value of their investments, but deflation would only make their hoards of money grow larger. Whatever the rich want is what the Republicans in Congress will demand, and Republicans almost always get their way on economic issues.
By the way, Professor Krugman never told us why he thinks the Swiss National Bank made a mistake. Is he going to keep us in suspense?
By the way, Professor Krugman never told us why he thinks the Swiss National Bank made a mistake. Is he going to keep us in suspense?
5
He thinks it's a mistake because it pushes them toward more deflation, which he considers a quagmire.
to unpaidpundit - from Switzerland: how about the SNB's mistake was pegging the CHF to the € for too long? The professor's line has always been that the € is crippled by the lack of political and democratic underpinnings. Looks like the SNB has come around to that conclusion also?
Mr. Krugman starts with incorrect information. Cuckoo clock are traditionally from the Black Forest region in Germany. It is best to leave joking aside when you are not well informed. Another sentence that includes a rather flat joke is actually callous: "But frankly — francly? — the fate of Switzerland isn’t the important issue." I am sure it is important at the very least to the residents of Switzerland and the many border crossers who hold jobs in Switzerland. Of course, since Prof. Krugman never tells us exactly what mistake the Swiss National Bank has just made, we also do not know what the fate of Switzerland will.
This is a very poorly argued commentary, short of solid information, by an outstanding economist who normally performs much better.
This is a very poorly argued commentary, short of solid information, by an outstanding economist who normally performs much better.
6
Obviously, Paul was thinking of Orson Welles in "the Third Man" film when jis character,Harry Lime, intoned:" Don't be so gloomy. After all it's not that awful. Like the fella says, in Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love - they had 500 years of democracy and peace, and what did that produce? The cuckoo clock. So long Holly. "
Using Switzerland as a loose metaphor for what not to do isn't a cardinal sin. Just listen to Merkel and company if you want to understand blind nationalist faith in the unworkable. Of course, the Germans have the rest of Europe to blame because everyone knows how pure they are.
Using Switzerland as a loose metaphor for what not to do isn't a cardinal sin. Just listen to Merkel and company if you want to understand blind nationalist faith in the unworkable. Of course, the Germans have the rest of Europe to blame because everyone knows how pure they are.
With inflation, except for runaway inflation like they had in Germany in the 1920’s, you can put your money in equities or real estate or art or gold or any non-monetary asset. The money you will receive when you ultimately convert the asset back into cash will be in currency with a lower unit value, but you will receive more units
With deflation, logic would tell you to do the opposite. Sell your tangible assets, because next month they will have a lower price tag. Put your money in tomato cans in the backyard or stuff the cash into your mattress, because next month your currency will have more buying power.
Sound easy enough? It isn’t. Suppose you are in debt, but you’ve been really good about keeping current with your payments. Too bad, because with deflation, each debt payment you make from now on will be higher – same number of dollars each month, but those dollars are becoming more valuable.
With deflation, logic would tell you to do the opposite. Sell your tangible assets, because next month they will have a lower price tag. Put your money in tomato cans in the backyard or stuff the cash into your mattress, because next month your currency will have more buying power.
Sound easy enough? It isn’t. Suppose you are in debt, but you’ve been really good about keeping current with your payments. Too bad, because with deflation, each debt payment you make from now on will be higher – same number of dollars each month, but those dollars are becoming more valuable.
5
Exactly right--deflation helps creditors and hurts debtors; vice-versa for inflation. But only the rich have the option to choose which they will be.
5
Yes, TimothyI, and that’s why the Republicans on Capitol Hill always sound the alarm about prevention of the coming inflation which never seems to come. With deflation it’s easier for the wealthy to play the heads-I-win, tails-you-lose game, because the average person has fewer choices.
Yes, and the only question in my mind is who'll be left to pick up the pieces. The world is desperate for leadership - courageous, insightful, tenacious leadership. And it is nowhere to be found. We desperately need the 21st century's FDR, but the political system is now geared to effectively kill him off before he ever gets to the microphone. Elizabeth Warren, phone home.
11
Well, that was useless. What are you trying to say? Stay away from the black hole of deflation by printing all the money you can? Keep interest rates at zero until 2100? I am retired and I will tell you what I am going to do. I am not going to invest in the stock market or go back to work. I will take Social Security when I reach 66 in three years and I will take my retirement in an annuity. I will no longer follow the stock market with fear and trepidation because life is too short and I have other things to do. I am tired of the fear and folly and I see no reason why it will end in the near future. I do find it odd that you always rail against those that try to exercise some discipline in financial matters, but economists with Nobel prizes are immune from the common sense most of us are accustomed to. I don't care what the Germans do. I don't care what the Italians do. I don't care what the Greeks do. Am I not a lucky man? I do think Krugman is seeing his economic beliefs fall apart in front of his eyes. It must be unsettling for a person who thinks he knows what's best for the world, that it won't do precisely what he wants it to do on his precise schedule. They call it life. Messy ain't it?
6
Doesn't the Swiss interest rate decision demonstrate that there really isn't a zero lower bound on interest rates? And if a negative .75 rate isn't enough to weaken the Swiss franc, what prevents Switzerland from lowering it still further? There must be some negative rate at which money leaves Switzerland and weakens the franc, which obviously is their policy goal?
3
Krugman fails to explain WHY we entered a "looking-glass world" in 2008, in which "economic virtues became vices" and "financial probity a route to stagnation." Some of his acolytes may indeed blame the 1% of most wealthy, but this sounds a little like blaming a scape goat. Do readers really believe that redistribution alone would avoid what appears to be a sea change in world economics, in which more and more economies become victims of secular stagnation?
There is a simpler explanation which does not come from Keynesian economics. Indeed, by itself Keynesian theory is incomplete. It might cure a depression which is caused by ONLY inadequate aggregate demand. But what if aggregate demand is not the only problem?
World population is now growing at about 1.14% per year. Suppose that growth rate continues unchanged into the future. The "rule of 72" extrapolated to the future shows that it will take about 1300 years for the world to become covered with people, one person per square foot, assuming the oceans have been covered with cement and people don't mind standing in Antarctica.
This is impossible so before that is achieved, death rates must go up to balance high birth rates.
AT SOME POINT, continued economic growth should become impossible and "secular stagnation" should result.
There is evidence we may be reaching that point. It is provided by global warming, the environment pushing back against "too many people."
If I am right, economics needs reformulation.
There is a simpler explanation which does not come from Keynesian economics. Indeed, by itself Keynesian theory is incomplete. It might cure a depression which is caused by ONLY inadequate aggregate demand. But what if aggregate demand is not the only problem?
World population is now growing at about 1.14% per year. Suppose that growth rate continues unchanged into the future. The "rule of 72" extrapolated to the future shows that it will take about 1300 years for the world to become covered with people, one person per square foot, assuming the oceans have been covered with cement and people don't mind standing in Antarctica.
This is impossible so before that is achieved, death rates must go up to balance high birth rates.
AT SOME POINT, continued economic growth should become impossible and "secular stagnation" should result.
There is evidence we may be reaching that point. It is provided by global warming, the environment pushing back against "too many people."
If I am right, economics needs reformulation.
3
Actually the Club of Rome produced a report in 1972 which is standing up really closely with what has happened in the 40 + years since. It's easy to find on the net. In it population crashes to 1900 levels before 2100.
1
Yes, economic growth has always had a population growth underlay. As world population stabilizes (nicely or not-so-nicely), continued exponential economic growth will be impossible. Ultimately, Malthus was right...
It doesn't mean that life at the individual, community level has to be miserable. But it does mean a global economic model based on fractional reserve banking will have to go.
Mind you, only, as mentioned by others, after fierce resistance by all the 'important people' until a wave of common sanity prevails.
We can then pick up the pieces and move on...
It doesn't mean that life at the individual, community level has to be miserable. But it does mean a global economic model based on fractional reserve banking will have to go.
Mind you, only, as mentioned by others, after fierce resistance by all the 'important people' until a wave of common sanity prevails.
We can then pick up the pieces and move on...
2
May happen someday, but with 10-20 percent real unemployment in the developed world, this is not what's happening now.
8
While I agree 100% with Dr. Krugman, I'd point out that until yesterday, the major currencies/economies flirting with or experiencing deflation have been: Japan, the Eurozone, Switzerland, and China. Aside from the yen, the remaining three of those four were not freely floating currencies tied to a single economy. The Swiss pegged to the euro; the yuan is effectively still unofficially pegged to the US dollar by a band within which the government will allow it to fluctuate; and while the eurozone countries all still issue their own government bonds even while using the same currency, so they basically have a 21 countries fixed to the Deutschemark under a different name (in other words, a fixed exchange rate system not that different from the post WW2 Brettonwood gold exchange standard system that used the US dollar and lasted until 1971).
Fixed exchange rate systems and pegged currencies always end* and when they do, it ends badly. The reason why the US, Canada, Australia and the UK have managed to have thus far escape the grip of deflation is because they all have their own currencies, even if they have politicians and central
bankers who at times take actions that are incredibly counter-productive.
*Hong Kong's peg to the dollar isn't a truly pegged currency because HK has adjusted the peg many times. Plus, given the political and economic situation in China, HK's currency has a strong likelihood of being de-linked from the dollar within a decade or so.
Fixed exchange rate systems and pegged currencies always end* and when they do, it ends badly. The reason why the US, Canada, Australia and the UK have managed to have thus far escape the grip of deflation is because they all have their own currencies, even if they have politicians and central
bankers who at times take actions that are incredibly counter-productive.
*Hong Kong's peg to the dollar isn't a truly pegged currency because HK has adjusted the peg many times. Plus, given the political and economic situation in China, HK's currency has a strong likelihood of being de-linked from the dollar within a decade or so.
56
I suspect your wrong in claiming that UK, Canada, Australia and the U.S. avoided deflation because they have their own currencies and they float their currencies.
It's not entirely a "monetary" problem. The U.S. implemented a minimal fiscal system. Australia doesn't suffer from concentrated wealth, they have respected unions and high minimum wages. Canada didn't commit the sin of deregulation and still has one third of its workforce represented by Unions. And currently the UK is flirting with deflation itself. Initially Brown had the UK in a liberal fiscal regime, but Cameron implemented austerity measures.
So I suspect your correlation between fixed rate and other monetary policies as the cause of deflation is partially incorrect.
It's not entirely a "monetary" problem. The U.S. implemented a minimal fiscal system. Australia doesn't suffer from concentrated wealth, they have respected unions and high minimum wages. Canada didn't commit the sin of deregulation and still has one third of its workforce represented by Unions. And currently the UK is flirting with deflation itself. Initially Brown had the UK in a liberal fiscal regime, but Cameron implemented austerity measures.
So I suspect your correlation between fixed rate and other monetary policies as the cause of deflation is partially incorrect.
3
Been to Switzerland lately? They were not 'flirting with deflation'. It's ridiculously expensive to live or visit. If anything, it will now get cheaper for locals as their wages will appreciate.
Dr. K,
Thanks for sounding the alarm. Clearly we are experiencing a global "slump" & like baseball a slump will not last forever & the needs of the World have not changed. There are plenty of needs but with the high global levels of unemployment, underemployment and stagnant wages the needs are not expressed. Even people with the resources to consume are developing a sense of fear about satisfying their needs because they don't have confidence in future incomes & some believe if they hold off on satisfying their needs, prices will come down, with the result that we have a crisis in aggregate demand that must be addressed.
There is not an easy solution but I believe sovereign governments must create higher incomes for those that have jobs. My son who is a school teacher has gone 9 years without a pay raise. Federal Government workers received a COLA increase of 1%, hardly a blockbuster raise. Putting people to work in livable wage jobs that share in the prosperity of the earning countries should be our number one priority. When the consumer market begins to recover in the advanced economies, the consumers will eventually glean the pent up inventories and stimulate investment.
The private sector won't do it, the demand ball must start rolling by government spending. The government & even the President boosts of cutting the deficit in half meaning that they do not understand the realities of the global market.
This Congress needs a good economics tutorial.
Thanks for sounding the alarm. Clearly we are experiencing a global "slump" & like baseball a slump will not last forever & the needs of the World have not changed. There are plenty of needs but with the high global levels of unemployment, underemployment and stagnant wages the needs are not expressed. Even people with the resources to consume are developing a sense of fear about satisfying their needs because they don't have confidence in future incomes & some believe if they hold off on satisfying their needs, prices will come down, with the result that we have a crisis in aggregate demand that must be addressed.
There is not an easy solution but I believe sovereign governments must create higher incomes for those that have jobs. My son who is a school teacher has gone 9 years without a pay raise. Federal Government workers received a COLA increase of 1%, hardly a blockbuster raise. Putting people to work in livable wage jobs that share in the prosperity of the earning countries should be our number one priority. When the consumer market begins to recover in the advanced economies, the consumers will eventually glean the pent up inventories and stimulate investment.
The private sector won't do it, the demand ball must start rolling by government spending. The government & even the President boosts of cutting the deficit in half meaning that they do not understand the realities of the global market.
This Congress needs a good economics tutorial.
10
"There’s no sign of accelerating inflation in the actual data,"
No there isn't but there are big signs of accelerating POVERTY among the nations retired saver-class. First we heard that when unemployment was back down to 6.5% the FED would begin to raise the interest rates. we've passed that milestone (which has now become a MILLSTONE for us old folk) a long time ago. The FED is still sitting on the pot (or smoking it if they are in Colorado or Washington).
If we had sent 100 CEOs to the hoosegow in 2009, reinstated Glass Steagall, stopped the bailouts for the "too big to fail" faction, perhaps we would be out of the economic cesspool that we are still swimming in.
The economy took a dive because billions of dollars that would have been paid to savers and other investors went instead to the 1% who just swished it off to Switzerland where it gathered dust because, lets face it, the 1% can't spend it fast enough paying immigrant yard help.
How ofter have we had it bashed into our tiny heads that the GDP is consumer driven to the tune of 70%--where was the money going to come from if not from interest on savings, since millions lost the jobs, houses, and in some cases, their lives.
Save for the revolving door between government regulators and the banks, this problem would have been solved. Let's hope that Elizabeth Warren puts the fear of God in the Wall St types.
she is my choice for 2016--the rest are just buffoons.
No there isn't but there are big signs of accelerating POVERTY among the nations retired saver-class. First we heard that when unemployment was back down to 6.5% the FED would begin to raise the interest rates. we've passed that milestone (which has now become a MILLSTONE for us old folk) a long time ago. The FED is still sitting on the pot (or smoking it if they are in Colorado or Washington).
If we had sent 100 CEOs to the hoosegow in 2009, reinstated Glass Steagall, stopped the bailouts for the "too big to fail" faction, perhaps we would be out of the economic cesspool that we are still swimming in.
The economy took a dive because billions of dollars that would have been paid to savers and other investors went instead to the 1% who just swished it off to Switzerland where it gathered dust because, lets face it, the 1% can't spend it fast enough paying immigrant yard help.
How ofter have we had it bashed into our tiny heads that the GDP is consumer driven to the tune of 70%--where was the money going to come from if not from interest on savings, since millions lost the jobs, houses, and in some cases, their lives.
Save for the revolving door between government regulators and the banks, this problem would have been solved. Let's hope that Elizabeth Warren puts the fear of God in the Wall St types.
she is my choice for 2016--the rest are just buffoons.
12
Why do you think the Swiss made a big mistake ? At an artificial exchange rate of 1.2 swiss france to the euro, they were running a trade and current account surplus greater than 10% of GDP. The budget is balanced, unemployment is at 3.5% and growth at 1%. With these conditions, where is the deflationary vortex ? Why should a central bank intervene to accumulate foreign exchange reserves equal to a multiple of its GDP ? The swiss franc should appreciate and be allowed to do so. Exporters crying foul are as ever exaggerating the consequences to protect larger profit margins.
4
The risk of our getting sucked into such a deflationary vortex should now, far and away, be the major concern of the US Federal Reserve. This danger, which could plunge the world back into a renewed financial crisis, should put off indefinitely any talk of "normalizing" (by which they mean raising) interest rates, until core inflation is at least 2 to 3 %.
There is, of course, a very obvious answer to a world of negative interest rates, huge numbers of unemployed and underemployed workers, declining prices, shrinking wages, crumbling infrastructure, and trillions of dollars in corporate bank accounts, while the economy stagnates. It's called fiscal stimulus, at a scale commensurate with the public need, rather than that dictated by Wall Street and its political sycophants. With the new Republican reactionary congress, we will be lucky indeed to avoid Great Depression II.
There is, of course, a very obvious answer to a world of negative interest rates, huge numbers of unemployed and underemployed workers, declining prices, shrinking wages, crumbling infrastructure, and trillions of dollars in corporate bank accounts, while the economy stagnates. It's called fiscal stimulus, at a scale commensurate with the public need, rather than that dictated by Wall Street and its political sycophants. With the new Republican reactionary congress, we will be lucky indeed to avoid Great Depression II.
235
The goal should not be more public expenditure, but the correct blend of coercion and incentives to get the trillions of corporate cash out into the economy and into productive use. The money to build into a new economy is available, we must insist it be used for growth, rather than hoarded out of fear.
Switzerland simply realized that it is folly for a country with a $0.7T GDP to try to prop up the currency of a trading area (Eurozone) with a $17T GDP.
It was nice to try for a while to see if the central bank bravado could scare away the Franc buyers. The market didn't believe it, and cornered the SNB, until it gave up. The SNB simply transferred $50B from itself to the Swiss Franc investors. A nice gain for calling a bluff.
And a nice boost for Germany (which is Dr. Krugman's villain), which once again gets rewarded for having made its economic adjustments (increasing retirement to 67, holding back wage growth) early on in the Euro timeline.
As to the implications to the US, it is noise. US exports are only 14% of GDP (compared to 50% for Switzerland and Germany), and only 2% of GDP to the Eurozone. So US$ appreciation against the Euro is less than noise. Even a huge 10% in US exports to the Eurozone would cut only 0.2% of our GDP growth.
The US Central bank has zero need to manipulate US exchange rates, and can focus solely in growth/price stability.
It was nice to try for a while to see if the central bank bravado could scare away the Franc buyers. The market didn't believe it, and cornered the SNB, until it gave up. The SNB simply transferred $50B from itself to the Swiss Franc investors. A nice gain for calling a bluff.
And a nice boost for Germany (which is Dr. Krugman's villain), which once again gets rewarded for having made its economic adjustments (increasing retirement to 67, holding back wage growth) early on in the Euro timeline.
As to the implications to the US, it is noise. US exports are only 14% of GDP (compared to 50% for Switzerland and Germany), and only 2% of GDP to the Eurozone. So US$ appreciation against the Euro is less than noise. Even a huge 10% in US exports to the Eurozone would cut only 0.2% of our GDP growth.
The US Central bank has zero need to manipulate US exchange rates, and can focus solely in growth/price stability.
52
'As to the implications to the US, it is noise. US exports are only 14% of GDP (compared to 50% for Switzerland and Germany),'
You found the reason, why the Job market in Switzerland and Germany is so much more satisfying than in the US. Because of such high export numbers an abundance of well paying jobs in production. A strong base of manufacturers the US is missing. And I heard there is a lot of 'noise' in the US because of that.
You found the reason, why the Job market in Switzerland and Germany is so much more satisfying than in the US. Because of such high export numbers an abundance of well paying jobs in production. A strong base of manufacturers the US is missing. And I heard there is a lot of 'noise' in the US because of that.
2
A CB can never lose a fight when trying to suppress its currency valuation, provided it does not (in this case, foolishly) engage in sterilization. 'Print' Francs, buy assets, do not sterilize delta M by bond issue, repeat as necessary. There was absolutely no rationale for engaging in sterilization of any sort. this was self defeating idiocy.
Kudos to the Swiss for intelligently trying to deal with a national problem beyond their control.
But if you want fear and folly look no further than the US. Unlike the Swiss, we are good at creating self-inflicted wounds. The financial meltdown instilled fear and other hardships due to rampant speculation, shenanigans, lax law enforcement and the gaming of the system by people on Wall St. It’s been called the worst recession since the Great Depression, yet many people are still living with the consequences today.
But just when you thought we came to our senses, part of our Congress shuts down our government - twice, lowers America’s credit rating and sets us up for the Fiscal Cliff - because they could. Heaven forbid if we had external trauma affecting our nation. We can hardly deal with schizophrenic nature of our MIA Congress and the corporations who pull their strings.
The only saving grace has been the Federal Reserve with their QE policies because Congress only solution is to bailout Wall St and impose Austerity to pay for their sins over the last 14 years.
This tempest in a teapot has only begun. The GOP have more members in the House since 1928 and a majority in both the House and Senate after shellacking the Dems. The party of “no” is now on the go. Based on the last 6 years, more folly and fear is yet to come.
Because no one out follies America, no one…
But if you want fear and folly look no further than the US. Unlike the Swiss, we are good at creating self-inflicted wounds. The financial meltdown instilled fear and other hardships due to rampant speculation, shenanigans, lax law enforcement and the gaming of the system by people on Wall St. It’s been called the worst recession since the Great Depression, yet many people are still living with the consequences today.
But just when you thought we came to our senses, part of our Congress shuts down our government - twice, lowers America’s credit rating and sets us up for the Fiscal Cliff - because they could. Heaven forbid if we had external trauma affecting our nation. We can hardly deal with schizophrenic nature of our MIA Congress and the corporations who pull their strings.
The only saving grace has been the Federal Reserve with their QE policies because Congress only solution is to bailout Wall St and impose Austerity to pay for their sins over the last 14 years.
This tempest in a teapot has only begun. The GOP have more members in the House since 1928 and a majority in both the House and Senate after shellacking the Dems. The party of “no” is now on the go. Based on the last 6 years, more folly and fear is yet to come.
Because no one out follies America, no one…
6
The swiss know money. The euro is tanking too much. So they will let the frank soar and then repeg to Euro. Makes sense.
2
Nonsense. It is a cheap power grab by corrupt thieves who are holding the Eurozone hostage and offering to save them by shaving .75%from deposits in their "safe currency"
The rats of WWII have re-emerged to feast on the bodies of weak Euro nations.
The rats of WWII have re-emerged to feast on the bodies of weak Euro nations.
1
Maybe a good time to restore the crumbling infrastructure, creating jobs and saving costs as compared to further delay.
3
Except, Paul - I'm not sure what price they are paying.
On the island of Manhattan, real estate prices have soared beyond the pale - but that just keeps more people coming.
Now, imagine if the salaries of people who live in Manhattan were indexed to real estate prices.
How would that hurt Manhattanites?
Exports, you say?
But their business is financials and creatives.
So how is Switzerland different?
Industry? Factories?
Well - what if factories are automated?
Tooling and materials are mostly sourced globally.
Agriculture?
You think we subsidize farmers...
You do realize, of course, there is a bound on interest rates below zero.
When they get to around to paying negative two percent - and there's a line out the door to take them up on this - they will be the world's first hedge-fund-nation.
Comparative advantage...That's so...boomer generation.
Perhaps the only enduring economic wisdom:
In the long run, we're all deflated.
On the island of Manhattan, real estate prices have soared beyond the pale - but that just keeps more people coming.
Now, imagine if the salaries of people who live in Manhattan were indexed to real estate prices.
How would that hurt Manhattanites?
Exports, you say?
But their business is financials and creatives.
So how is Switzerland different?
Industry? Factories?
Well - what if factories are automated?
Tooling and materials are mostly sourced globally.
Agriculture?
You think we subsidize farmers...
You do realize, of course, there is a bound on interest rates below zero.
When they get to around to paying negative two percent - and there's a line out the door to take them up on this - they will be the world's first hedge-fund-nation.
Comparative advantage...That's so...boomer generation.
Perhaps the only enduring economic wisdom:
In the long run, we're all deflated.
2
The swan song of bubble lovers.
1
What to do???? Where to park all that money? Does Dr. Krugman have some trustworthy insight on this world problem? For the sake of seven plus billion souls I hope so!
1
Yes. Read Keynes. Money is a tool, created by nations to effect the exchange of goods and services. It can and is manipulated to serve those in control. Serving the largest group within a nation or the elite is the true conflict. In and of itself, money is as meaningful as any social tool. Or not.
The last bubble illustrated the plasticity of money when the Fed and Treasury materialized and dematerialized trillions....just like magic.
The last bubble illustrated the plasticity of money when the Fed and Treasury materialized and dematerialized trillions....just like magic.
6
Here is a thought I have been expressing for years:
A wealthy man can east only so many meals a day, wear only so many suits of clothing, and drive only so many cars.
A hundred poor people can't buy anything, but if they could, they would outspend the rich man manyfold for food, clothing, transportation, etc. in the ordinary events of daily life.
Does that make perfectly clear why extreme income inequality is not good for the economy?
All the mega-rich so-called "job creators" don't even have butlers and chauffeurs any more. They create very few jobs in proportion to their wealth.
And this is now becoming the norm all over the world.
Hmmm, I wonder why there is a problem and potential deflation on the horizon.
A wealthy man can east only so many meals a day, wear only so many suits of clothing, and drive only so many cars.
A hundred poor people can't buy anything, but if they could, they would outspend the rich man manyfold for food, clothing, transportation, etc. in the ordinary events of daily life.
Does that make perfectly clear why extreme income inequality is not good for the economy?
All the mega-rich so-called "job creators" don't even have butlers and chauffeurs any more. They create very few jobs in proportion to their wealth.
And this is now becoming the norm all over the world.
Hmmm, I wonder why there is a problem and potential deflation on the horizon.
10
There seems to be this endless confusion, who will win from this 'radical experiment' so lets brake it down 'Zone by Zone'
First - The Eurozone.
Paul Krugman always stated, that economical success depends a lot on currency exchange and that keeping a currency low in comparison to the competitors is a win win situation. The head of the ECB Draghi finally took this advice to heart and hinted QE and if Prof. Krugman is right the Eurozone will be winning with a lower Euro and higher exports to the US and everywhere else.
Second - the USZone.
The only way the US could be winning is if Prof. Krugman and Draghi is wrong.
Third - The Swisszone.
The Swisszone just has to wait how it pans out.
If the amount of money they are losing by exporting less - is balanced by the amount of money the are making more by having higher prices.
And how many tourists decide to avoid Switzerland and making vacations in cheaper Euro-countries.
First - The Eurozone.
Paul Krugman always stated, that economical success depends a lot on currency exchange and that keeping a currency low in comparison to the competitors is a win win situation. The head of the ECB Draghi finally took this advice to heart and hinted QE and if Prof. Krugman is right the Eurozone will be winning with a lower Euro and higher exports to the US and everywhere else.
Second - the USZone.
The only way the US could be winning is if Prof. Krugman and Draghi is wrong.
Third - The Swisszone.
The Swisszone just has to wait how it pans out.
If the amount of money they are losing by exporting less - is balanced by the amount of money the are making more by having higher prices.
And how many tourists decide to avoid Switzerland and making vacations in cheaper Euro-countries.
1
I realize that this comment isn't relevant to the overall point of the column, but I still wonder why official bodies, responsible to their electorate, or even quasi-governmental bodies like national banks, are allowed to lie in their statements. The ends do not justify the means, and making up excuses about a weakening euro because of some psychological game they're playing is wrong.
7
We Swiss did the right thing. People want truth, not just from Nobel prized economists, but also from market participants. And the truth is that the Euro is very weak and liquidity measures have not seemed to help it.
6
The truth is - that the high value of the Swiss Franc is the legendary double edged sword and we all will have to wait who cut himself with it deeper?
What a fantastic column!
The link to the FRED graph was worth the price of admission alone, and I would hope that that particular graph could be visited again to completely understand it.
In my opinion, the reason the Swiss abandoned the peg is that they abandoned Europe. Very rich and serious Swiss citizens told the bank that they did not want the dollar value of their francs to fall. Now, the franc has gotten closer to parity with the dollar.
More evidence that Europe has very, very big problems. Wolfgang Schäuble makes a bad Emperor.
After all, if quantitative easing is the only thing Europe will produce to try to right the ship of state, it will not work. And Wolfgang is against even that.
The link to the FRED graph was worth the price of admission alone, and I would hope that that particular graph could be visited again to completely understand it.
In my opinion, the reason the Swiss abandoned the peg is that they abandoned Europe. Very rich and serious Swiss citizens told the bank that they did not want the dollar value of their francs to fall. Now, the franc has gotten closer to parity with the dollar.
More evidence that Europe has very, very big problems. Wolfgang Schäuble makes a bad Emperor.
After all, if quantitative easing is the only thing Europe will produce to try to right the ship of state, it will not work. And Wolfgang is against even that.
2
You mean the US and Switzerland have a very, very bid problem as economists like Dean Baker suggest, that the ECB initiated fall of the Euro will cost the US economy hundred thousands of jobs and an even higher trade deficit as in the last year.
And Europe is an the up again with rising exports - also into Switzerland.
And Europe is an the up again with rising exports - also into Switzerland.
In my opinion, the deflationary problem of these days is directly connected to the extremely unequal distribution of wealth in the West. The people on the lower income level have less money to spend, on the one hand, and the rich save most of their personal income on the other hand. With less spending and more saving you get deflationary econimics. Of course, more government spending could help, however increased private consumption would do better.
16
This is another "unintended consequence" of easy money policies. It causes asset inflation, but does little to boost real economic activities. The reason is because households have maxed out on debt, and making borrowing cheaper would not alleviate that situation. It also introduces risky behaviour, since conservative investments have very inadequate returns due to the low interest rates.
The rich, with assets such as stocks, real estate etc. benefit. But the increase of their wealth does not trickle down. The money is put into investments and luxury goods, leading to more inflation of financial assets and prices of fine wine, yachts, supercars, artwork etc.
If one is cynical, one would think that Central Banks is the tool capitalists invented to redistribute wealth from the poor to the rich.
The rich, with assets such as stocks, real estate etc. benefit. But the increase of their wealth does not trickle down. The money is put into investments and luxury goods, leading to more inflation of financial assets and prices of fine wine, yachts, supercars, artwork etc.
If one is cynical, one would think that Central Banks is the tool capitalists invented to redistribute wealth from the poor to the rich.
14
"This is another "unintended consequence" of easy money policies."
It is an intended consequence of Republican policies.
Monetary policy is the only tool left when fiscal policy has been zeroed out by Republican obstruction. That disproportionately helps those who already have money. Republicans see that as a feature, not a flaw.
It is an intended consequence of Republican policies.
Monetary policy is the only tool left when fiscal policy has been zeroed out by Republican obstruction. That disproportionately helps those who already have money. Republicans see that as a feature, not a flaw.
8
The Swiss should have adopted the Euro in the first place. They are a "small, open economy", and like others in that category, having an independent currency only is a headache, in no way a useful macroeconomic policy tool.
3
" This is one reason that slashing government spending in a depressed economy is such a bad idea: It’s not just the immediate cost in lost jobs, but the increased risk of getting caught in a deflationary trap."
In modern macroeconomic policy management, each case is a case.Japan is a good case study. It is the only advanced economy caught up in deflation. Japanese economic policy makers reacted to the price asset bubble bust of late 80s by increasing government spending.
The end result, not reversed so far, was a public debt over 200% of GDP, meager growth and falling prices. Very importantly, by law the huge private savings of Japanese families are used to finance the public debt at low level of interest rates.
The eurozone macro picture is different from Japan. Governments have to rely on market determined rates to finance public debt. This explains why Spain with a public debt of 70%/GDP had to face unsustainable interest rates to finance its debt. The current fiscal policy of reestablishing sustainability to public spending is determined by market's fundamentals.
It remains to be seen whether or not the eurozone will fall into the deflationary trap experienced by Japan. The ECB, by its bylaws, cannot get into a money printing spree and buying public debt as the FED did in the US.
It will take longer for the eurozone member countries to restore macroeconomic balances and resume sustainable growth. Meanwhile, prices and wages will continue depressed.
In modern macroeconomic policy management, each case is a case.Japan is a good case study. It is the only advanced economy caught up in deflation. Japanese economic policy makers reacted to the price asset bubble bust of late 80s by increasing government spending.
The end result, not reversed so far, was a public debt over 200% of GDP, meager growth and falling prices. Very importantly, by law the huge private savings of Japanese families are used to finance the public debt at low level of interest rates.
The eurozone macro picture is different from Japan. Governments have to rely on market determined rates to finance public debt. This explains why Spain with a public debt of 70%/GDP had to face unsustainable interest rates to finance its debt. The current fiscal policy of reestablishing sustainability to public spending is determined by market's fundamentals.
It remains to be seen whether or not the eurozone will fall into the deflationary trap experienced by Japan. The ECB, by its bylaws, cannot get into a money printing spree and buying public debt as the FED did in the US.
It will take longer for the eurozone member countries to restore macroeconomic balances and resume sustainable growth. Meanwhile, prices and wages will continue depressed.
4
If 'unsound money' is the logical alternative, how exactly does a rational person have any confidence in what passes as modern money. We know how the monetary base is created - by imagineering - its offspring that most people count on for everyday living must prove itself to be equally worthless to avoid some sort of national catastrophe.
Money as we know it know is now merely a receipt for goods and services but fails as anything else. It appears that the 100 year old bait and switch, ponzi scheme is just about over.
Money as we know it know is now merely a receipt for goods and services but fails as anything else. It appears that the 100 year old bait and switch, ponzi scheme is just about over.
2
Money whether it is paper or gold has never been worth more nor less than the next person was willing to exchange goods for. If an ounce of gold buys a loaf of bread today there is no assurance the 'baker' will accept that same price next time. Money is not BTW a ponzi scheme, it is a means of hauling a 'bushel of wheat' in your back pocket. It has never been anything else.
"If you ask me, the Swiss just made a big mistake."
They had little choice. It was becoming too expensive to maintain the peg. Plus, i dont think the real Swiss economy will be impacted too much. Giant corporations such as Novartis, Roche etc have most of their manufacturing abroad, with only maybe R&D and high end engineering in Switzerland. Most of the smaller manufacturers either focus on the premium end of the market (like in watches), or in very high value added mechanical engineering. These sectors are not very sensitive to currency swings.
Best solution is for Switzerland to join the EU and adopt the euro. Don't see that happening though, the Swiss would definitely not like even a portion of their gold reserves being trucked down the road to Frankfurt to back the ECB.
They had little choice. It was becoming too expensive to maintain the peg. Plus, i dont think the real Swiss economy will be impacted too much. Giant corporations such as Novartis, Roche etc have most of their manufacturing abroad, with only maybe R&D and high end engineering in Switzerland. Most of the smaller manufacturers either focus on the premium end of the market (like in watches), or in very high value added mechanical engineering. These sectors are not very sensitive to currency swings.
Best solution is for Switzerland to join the EU and adopt the euro. Don't see that happening though, the Swiss would definitely not like even a portion of their gold reserves being trucked down the road to Frankfurt to back the ECB.
4
Krugman is a true teacher. And, what I like about him in this column is it is such a short, concise, easy-to-understand lecture on a seemingly complex issue. When I taught high school US Government, I wish our book had a chapter on state economics and fiscal policies, with Krugman as the author, and easy-to-read, short lessons like this. This is what people around the world should read first and foremost; then, and only then, go to the sports and celebrity pages.
I would add one thing: I would like to see more focus on the other immense and imminent fiscal/social problem: inequality. I would like to know if Krugman feels that creating 'billionaires' is actually a good thing, or does that necessitate thousands of others being poor: if you have a pharaoh, don't you need slaves? And, are today's wage-slaves one of the main cauldrons of desperation the leaders of the madness of terrorism recruit from? And, with so many of us approaching retirement age and living into our 80s and beyond, how to we attack both criminal levels of inequality, while at the same time dealing with a population that requires more and more of our resources during our ever-growing 'golden' years?
No easy answers; but we need more Krugmans breaking our challenges down into understandable parts and helping us understand a better way.
I would add one thing: I would like to see more focus on the other immense and imminent fiscal/social problem: inequality. I would like to know if Krugman feels that creating 'billionaires' is actually a good thing, or does that necessitate thousands of others being poor: if you have a pharaoh, don't you need slaves? And, are today's wage-slaves one of the main cauldrons of desperation the leaders of the madness of terrorism recruit from? And, with so many of us approaching retirement age and living into our 80s and beyond, how to we attack both criminal levels of inequality, while at the same time dealing with a population that requires more and more of our resources during our ever-growing 'golden' years?
No easy answers; but we need more Krugmans breaking our challenges down into understandable parts and helping us understand a better way.
23
A serious newspaper should just drop the sports and celebrity pages, a true waste of column space. I prefer the real news, like that which Krugman delivers reliably in plain language.
And how incredible ironious?
From a German standpoint one of the deepest fears of inflation has come true.
18 percent in one day!!
In words: 'Eighteen Percent' inflation of Germanys currency compared to the currency of the neighboring country Switzerland. Germans are known as the 'Travel-Worldchampions' and nothing hurts them more if their money doesn't pay anymore what it payed at last years vacation.
This inflation of the Euro created a lot more unhappy Germans than even paying to help out their neighbors.
From a German standpoint one of the deepest fears of inflation has come true.
18 percent in one day!!
In words: 'Eighteen Percent' inflation of Germanys currency compared to the currency of the neighboring country Switzerland. Germans are known as the 'Travel-Worldchampions' and nothing hurts them more if their money doesn't pay anymore what it payed at last years vacation.
This inflation of the Euro created a lot more unhappy Germans than even paying to help out their neighbors.
2
I question economists’ definition of inflation, especially regarding necessities.
Last weekend I cleaned out a file cabinet and found phone bills - local plus long distance - from a dozen years ago. It was all the service we needed to fit into society and accomplish our needs, and it cost in the teens or twenties per month.
Today, we seem to need local phone service plus mobile plus long distance cards plus Internet service - all to remain even half-way socially acceptable (and have some of the same quality sound). The total is in the seventies or eighties - and that’s despite constant shopping for better plans.
So is 11% or 12% annual inflation what economists figured for the past 12 years? - because that's my rough approximation. I think not.
Last weekend I cleaned out a file cabinet and found phone bills - local plus long distance - from a dozen years ago. It was all the service we needed to fit into society and accomplish our needs, and it cost in the teens or twenties per month.
Today, we seem to need local phone service plus mobile plus long distance cards plus Internet service - all to remain even half-way socially acceptable (and have some of the same quality sound). The total is in the seventies or eighties - and that’s despite constant shopping for better plans.
So is 11% or 12% annual inflation what economists figured for the past 12 years? - because that's my rough approximation. I think not.
7
Price-gouging isn't inflation, and I say "price-gouging," because various legislators and Presidents, mostly Republican, handed Verizon et al sweetheart deals on the public airwaves and bandwith and suchlike.
However, I'd also point out that the Internt, cable, and a few other things weren't around a few years back.
However, I'd also point out that the Internt, cable, and a few other things weren't around a few years back.
I question gc's definition of inflation as meaning nothing but "the cost of telephone service".
I also question gc's defintion of "necessity".
I also question gc's defintion of "necessity".
1
And whatever anybody posts here - don't forget that the advice to initiate this monsterous currency gamble also came from the US.
And all the economists, who suggested for Draghi to start the engine without thinking about the unintented consequences are responsible.
And this is not to criticise or insult such economists.
How should they know? - As economics have quite naturally become a door without hinges flapping in the wind.
And all the economists, who suggested for Draghi to start the engine without thinking about the unintented consequences are responsible.
And this is not to criticise or insult such economists.
How should they know? - As economics have quite naturally become a door without hinges flapping in the wind.
2
Thank you for this quick lesson in the dangers of playing blind man bluff with the banking system.
When Nixon ended the gold standard every voice was raised in panic that there was nothing to keep inflation from becoming hyper-inflation. The voices were wrong because the value of fiat money is determined by the political and military force that the holders of the money can bring to bear on the people.
What they did not realize is that they were almost right. When the only limit on inflation is the presence of political power and the willingness to enforce illusion by government that is also the only limit on deflation.
If we are unwilling to address a debt and demand crises with government choice we are helpless in the face of the fears of the masses. So when the political elite scream about the dangers of inflation and public debt from the rooftops while no such danger exists then there is nothing that can stop deflation.
When Nixon ended the gold standard every voice was raised in panic that there was nothing to keep inflation from becoming hyper-inflation. The voices were wrong because the value of fiat money is determined by the political and military force that the holders of the money can bring to bear on the people.
What they did not realize is that they were almost right. When the only limit on inflation is the presence of political power and the willingness to enforce illusion by government that is also the only limit on deflation.
If we are unwilling to address a debt and demand crises with government choice we are helpless in the face of the fears of the masses. So when the political elite scream about the dangers of inflation and public debt from the rooftops while no such danger exists then there is nothing that can stop deflation.
9
The Swiss make lovely cuckoo clocks if that's your choice, but they originated in the Black Forest of Germany. But they the Swiss bankers are a slightly cuckoo version of the Euro wide German style economy.
I don't think there is a similar bit of humor about the real message of PK's column. This is getting scary,mall the worse because of actual policy makers intent on pursuing austerity at any price despite all the evidence to the contrary.
Re-elect your current VSPs and suffer.
I don't think there is a similar bit of humor about the real message of PK's column. This is getting scary,mall the worse because of actual policy makers intent on pursuing austerity at any price despite all the evidence to the contrary.
Re-elect your current VSPs and suffer.
8
I don't think it is about 'sound money' it is quite the opposite.
There is so much speculative money around, that the streams of such trillions are like the preverberal vampire squid relentlessly jamming its blood funnel into anything that smells like MORE money.
And the 'confidence fairy' rules supreme in a chaotic currency market, where all the money streams end up in currencies which gives the speculatars and the investors the most confidence.
Or did the head of the ECB, who really initiated that drive into Dollars and Francs know what he really was doing? And it is his plan to debase the Euro to such an extent, that even the Swiss decided to throw in the towel?
There is so much speculative money around, that the streams of such trillions are like the preverberal vampire squid relentlessly jamming its blood funnel into anything that smells like MORE money.
And the 'confidence fairy' rules supreme in a chaotic currency market, where all the money streams end up in currencies which gives the speculatars and the investors the most confidence.
Or did the head of the ECB, who really initiated that drive into Dollars and Francs know what he really was doing? And it is his plan to debase the Euro to such an extent, that even the Swiss decided to throw in the towel?
4
Maybe, woken up from their slumber by Putin and Islamists, the Europeans are waking up. The French government is now saying, or should be saying, that military force, and spending ought to increased, not decreased.
And this is obvious. One Jihadist requires 30 person to watch over, and there maybe as many as 10,000.
France has already announced that she will engage in 4.5% deficit, for the next two years. Why not 5%, or 6%, or more? The European Commission just admitted that deficit targets will have to be relaxed. German politicians are suddenly remarking France is doing the heavy military lift, and should be paid for that, or something.
How to implement all this, and what would be the most natural consequence of all this?
Bringing the Euro down, big time.
So is the SNB crazy? Another explanation is that the Swiss National Bank knows something. What would that be? Pegging the Swiss Franc to parity with the Euro will insure an inflationary pressure. How? If the Euro is going down, big time.
As I advised to do, for years.
What's the context? Some say that energy prices in the USA are now about half of those in Europe. As a result, industries and jobs are fleeing, or emigrating, to the USA. How to fix that? With a very low Euro.
And what of the price of energy? The collapse of oil and gas makes the collapse of the Euro affordable. Call that the Grand Economic Conspiracy (GEC).
https://patriceayme.wordpress.com/2015/01/03/krugman-obama-is-awkward-mu...
And this is obvious. One Jihadist requires 30 person to watch over, and there maybe as many as 10,000.
France has already announced that she will engage in 4.5% deficit, for the next two years. Why not 5%, or 6%, or more? The European Commission just admitted that deficit targets will have to be relaxed. German politicians are suddenly remarking France is doing the heavy military lift, and should be paid for that, or something.
How to implement all this, and what would be the most natural consequence of all this?
Bringing the Euro down, big time.
So is the SNB crazy? Another explanation is that the Swiss National Bank knows something. What would that be? Pegging the Swiss Franc to parity with the Euro will insure an inflationary pressure. How? If the Euro is going down, big time.
As I advised to do, for years.
What's the context? Some say that energy prices in the USA are now about half of those in Europe. As a result, industries and jobs are fleeing, or emigrating, to the USA. How to fix that? With a very low Euro.
And what of the price of energy? The collapse of oil and gas makes the collapse of the Euro affordable. Call that the Grand Economic Conspiracy (GEC).
https://patriceayme.wordpress.com/2015/01/03/krugman-obama-is-awkward-mu...
1
Perhaps gradually restoring family wealth would be the best course for families and the economy. Full employment and higher salaries can be created by eliminating the job killing payroll taxes. Social Security can be better funded with a new blend of taxes with low rates. Consumer spending can rebalance the economy from the bottom up.
A 4% VAT and 8% business income tax would be the most competitive in the world. For individuals a choice of a 26% income tax or an 8% income.and 2% net wealth (excluding $15,000 cash and 500,000 retirement savings) would let workers keep 92% of their pay ... until they accumulated real wealth
Over a decade the richest 10% ,might see their share of wealth decline from 75% to 70% but it could be part of a much larger economy and a substantial gain in absolute terms. The poorer half of the population now shares just 1% of wealth and this could increase by a factor of three or four.
A 4% VAT and 8% business income tax would be the most competitive in the world. For individuals a choice of a 26% income tax or an 8% income.and 2% net wealth (excluding $15,000 cash and 500,000 retirement savings) would let workers keep 92% of their pay ... until they accumulated real wealth
Over a decade the richest 10% ,might see their share of wealth decline from 75% to 70% but it could be part of a much larger economy and a substantial gain in absolute terms. The poorer half of the population now shares just 1% of wealth and this could increase by a factor of three or four.
2
I wonder what too expensive means in this context "the effort to keep the franc down too expensive." The cost is increased liabilities of the Swiss National Bank -- which the Swiss National Bank can create at will.
I think one odd aspect of the through the looking glass liquidity trap world is that loser's benefit. A central bank can achieve its objectives by buying high and selling low. What happens if a central bank's balance sheet doesn't balance with more liabilities than assets ? It doesn't go bankrupt -- the liabilities are pure fiat money. The only effect I see is that it can't retire those liabilities even if it wants to.
That is it is committed to an irreversible expansion of the money supply. That is just what the economy needs.
Now one way to achieve higher liabilities is to helicopter drop money (which is really combined monetary and fiscal policy). However, central banks aren't allowed to do that. They can buy overpriced (in Francs) Euro denominated assets however.
This seems to me to be a benefit of the old policy, because if the central bank loses wealth the economy gains.
I think one odd aspect of the through the looking glass liquidity trap world is that loser's benefit. A central bank can achieve its objectives by buying high and selling low. What happens if a central bank's balance sheet doesn't balance with more liabilities than assets ? It doesn't go bankrupt -- the liabilities are pure fiat money. The only effect I see is that it can't retire those liabilities even if it wants to.
That is it is committed to an irreversible expansion of the money supply. That is just what the economy needs.
Now one way to achieve higher liabilities is to helicopter drop money (which is really combined monetary and fiscal policy). However, central banks aren't allowed to do that. They can buy overpriced (in Francs) Euro denominated assets however.
This seems to me to be a benefit of the old policy, because if the central bank loses wealth the economy gains.
The cost is worse than that. Please read a bit on the economic trilemma known as the Impossible Trinity. From wikipedia:
"The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:
A fixed exchange rate
Free capital movement (absence of capital controls)
An independent monetary policy"
In the case of Switzerland, they wanted a fixed exchange rate and capital movement. So what they lost was the ability to affect their level of inflation or unemployment through monetary policy.
Now if they'd declared that their peg was flexible and would shift over time based on economic conditions (kind of like what Singapore does against the US dollar), then they'd regain some value from monetary policy. A flat 1.2 though, eventually maintaining that was going to cause inflation problems, as they sell enormous amounts of their currency. Sounds like they realized they were hitting that wall.
"The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:
A fixed exchange rate
Free capital movement (absence of capital controls)
An independent monetary policy"
In the case of Switzerland, they wanted a fixed exchange rate and capital movement. So what they lost was the ability to affect their level of inflation or unemployment through monetary policy.
Now if they'd declared that their peg was flexible and would shift over time based on economic conditions (kind of like what Singapore does against the US dollar), then they'd regain some value from monetary policy. A flat 1.2 though, eventually maintaining that was going to cause inflation problems, as they sell enormous amounts of their currency. Sounds like they realized they were hitting that wall.
1
In their 2004 paper “Deflation and Depression”, economists from the Federal Reserve of Minneapolis demonstrated, in an unimpeached study of 17 countries over 100 years, that there was virtually NO link between deflation and depression.
Why then this visceral fear of deflation? We all know many industries that have experienced long-term deflation but that thrive (e.g.: telecoms, consumer electronics). Lower prices in these industries allow all of us to buy more and better goods and services far cheaper -and allow us to spend the resulting savings on other needs, creating jobs elsewhere.
The Swiss just became 15%-20% richer, and I say good for them, they have earned it. They can buy cheaper Euro- and Dollar-denominated goods to either consume or to reduce their production costs. And I am willing to bet that, now as in the past, they will find a way to remain competitive through innovation and know-how and superior management (as opposed to through the illusion of competitiveness that currency depreciation -or lack of appreciation- creates).
Devaluing currencies, as Dr Krugman constantly suggests, under the premise that what makes us individually poorer makes us collectively richer is just odd.
Why then this visceral fear of deflation? We all know many industries that have experienced long-term deflation but that thrive (e.g.: telecoms, consumer electronics). Lower prices in these industries allow all of us to buy more and better goods and services far cheaper -and allow us to spend the resulting savings on other needs, creating jobs elsewhere.
The Swiss just became 15%-20% richer, and I say good for them, they have earned it. They can buy cheaper Euro- and Dollar-denominated goods to either consume or to reduce their production costs. And I am willing to bet that, now as in the past, they will find a way to remain competitive through innovation and know-how and superior management (as opposed to through the illusion of competitiveness that currency depreciation -or lack of appreciation- creates).
Devaluing currencies, as Dr Krugman constantly suggests, under the premise that what makes us individually poorer makes us collectively richer is just odd.
7
Unfortunately for your analysis, Switzerland is a major exporter (e.g., pharmaceuticals), and their products just became unaffordable in Euros. Oh, but they'll just wave a magic wand and lower their costs 20 percent
The problem will not be depression, but the lack of growth that has plagued the Japanese for many years. Perhaps the freshwater crowd in Minneapolis should rejoin the Real World.
The problem will not be depression, but the lack of growth that has plagued the Japanese for many years. Perhaps the freshwater crowd in Minneapolis should rejoin the Real World.
15
Apparently the people who wrote this piece never went to Spain or Greece.
Countries devalue their currency in response to a crisis. The Greek and Spanish economies have deep problems which is why they might want to devalue their currencies. Keeping their currency artificially high has devastated those countries or do you think it's made Greece and Spain richer? Can you cite the numbers? As for countries that have devalued their currencies, China to name just one country has done pretty well for itself (and Japan did well for itself for a long time during its boom by keeping its currency low).
Countries devalue their currency in response to a crisis. The Greek and Spanish economies have deep problems which is why they might want to devalue their currencies. Keeping their currency artificially high has devastated those countries or do you think it's made Greece and Spain richer? Can you cite the numbers? As for countries that have devalued their currencies, China to name just one country has done pretty well for itself (and Japan did well for itself for a long time during its boom by keeping its currency low).
18
Andrew,
You have to look at who gets to hold the collective money to understand. With inflation, debt, including government debt, is paid back with cheaper dollars. With deflation the opposite is true. The Professor is a big government Liberal, what else do you need to say.
You have to look at who gets to hold the collective money to understand. With inflation, debt, including government debt, is paid back with cheaper dollars. With deflation the opposite is true. The Professor is a big government Liberal, what else do you need to say.
The Swiss paying a negative interest rate means more money will likely come flowing to the US in search of debt to buy, given that we are for some reason still considered a safe investment. I really wonder how much that might drive down our interest rates--if we go negative like the Swiss, it will do very strange things to our economy.
3
That's... not how it works. The Swiss have SET an interest rate of -0.75% on bank reserves. That was a policy decision, and it has noting in particular to do with bond yields, which I *think* is what you are referencing. Money going into US Government bonds can indeed push the bond yield below zero (and, for inflation-adjusted bonds, the yield has been below zero almost the entire time since 2011.) Bond yields of below zero don't do anything special.
1
Deflation is like a hole in the floor which economists recommend remain tightly closed. Inflation is like the ceiling crashing in on you. Inflation is good for debtors and bad for creditors and deflation is the opposite. Since 2008 inflation does not seem to be a problem even with running the printing press. But the super- wealthy plutocrats who see a way in deflation to increase the value of piles of cash they already possess, without investing it or taking any risk, and with an added value for them which is the increase if value is tax free to boot.
These mega-billionaires have ignored the sign on the door in the floor marked: “Danger - Depth Unknown - Once in Hard to Climb Out.” And here the USA stands with economists warning of the experience of Japan and Europe and the problems of the Swiss, looking at the open door in the floor that door having been opened by Republican spending policies: no investment in infrastructure, no jobs program no increase in wages to create demand.
Tempted by that hole in the floor the new Republican majority and their masters are saying: jump, jump. Hoover was right and FDR destroyed the American economy and stole our freedom. Conservatism means austerity unless you are rich. It is not about economics it’s about freedom, the freedom of the billionaires to run the nations economy for their own maximum profit, to own everything, including the government, in total disregard of the of the interests and well being of everyone else.
These mega-billionaires have ignored the sign on the door in the floor marked: “Danger - Depth Unknown - Once in Hard to Climb Out.” And here the USA stands with economists warning of the experience of Japan and Europe and the problems of the Swiss, looking at the open door in the floor that door having been opened by Republican spending policies: no investment in infrastructure, no jobs program no increase in wages to create demand.
Tempted by that hole in the floor the new Republican majority and their masters are saying: jump, jump. Hoover was right and FDR destroyed the American economy and stole our freedom. Conservatism means austerity unless you are rich. It is not about economics it’s about freedom, the freedom of the billionaires to run the nations economy for their own maximum profit, to own everything, including the government, in total disregard of the of the interests and well being of everyone else.
56
Deflation is good for no one, as Mr. Krugman has so amply demonstrated over and over and over. But to understand why, you have to be paying attention, because like most economic theory, your gut will often lead you astray.
A thought experiment for you: let's take it as given that employers are VERY reluctant to give people pay cuts in nominal dollars, year on year, in a hard economy. (We can take it as given because it's been proven over and over again. If you want more information on this, google 'nominal wage rigidity')
Now, let's say that the price of everything ELSE goes down by 10% from this year to next year. What does the employer do, if he doesn't want to lower everyone's pay? (Haha, no, he doesn't take a pay cut himself, don't be SILLY. He's a job creator, he needs his 10% raise.) That's right, he lays off ten percent of his workers!
And of course this is repeated over the entire economy. Now 90% of workers have gotten a raise, but 10% of workers are now unemployed. And a worker who has gotten a raise of 10% does not up his spending by 10%. (Spending does go up, but not by as much as earnings do.) But an employee who gets laid off is suddenly spending a LOT less, even if he does get unemployment.
Additionally, if everyone sees the prices of things going down every year for a couple of years, they start putting off big purchases, knowing they'll be cheaper in a couple of years.
NOT a good combination, and a hard train to get off once you're on it.
A thought experiment for you: let's take it as given that employers are VERY reluctant to give people pay cuts in nominal dollars, year on year, in a hard economy. (We can take it as given because it's been proven over and over again. If you want more information on this, google 'nominal wage rigidity')
Now, let's say that the price of everything ELSE goes down by 10% from this year to next year. What does the employer do, if he doesn't want to lower everyone's pay? (Haha, no, he doesn't take a pay cut himself, don't be SILLY. He's a job creator, he needs his 10% raise.) That's right, he lays off ten percent of his workers!
And of course this is repeated over the entire economy. Now 90% of workers have gotten a raise, but 10% of workers are now unemployed. And a worker who has gotten a raise of 10% does not up his spending by 10%. (Spending does go up, but not by as much as earnings do.) But an employee who gets laid off is suddenly spending a LOT less, even if he does get unemployment.
Additionally, if everyone sees the prices of things going down every year for a couple of years, they start putting off big purchases, knowing they'll be cheaper in a couple of years.
NOT a good combination, and a hard train to get off once you're on it.
The same market forces that are inundating the Swiss National Bank are fueling a similar investor flight to safety here in the US. Demand for US Treasury securities has soared, pushing down the 10-year yield from 2.26% to 1.77% in the last 3 weeks alone. This presents an excellent opportunity for the Federal Reserve to start quietly off-loading some of the massive holdings of bonds it purchased under quantitative easing, without causing a spike in interest rates. The Fed currently holds $2.5 trillion in US Treasury securities on its $4.5-trillion balance sheet. Are you listening, Janet Yellen?
2
I do not understand. Where is the money more useful? In the private sector where it is now? Or in the coffers of the FED where it does nobody any good?
While I understand that slight inflation is ideal, deflation seems a lot easier to cure than inflation. Can't the government simply increase spending? Giving money to the banks or the wealthy may not increase spending (as Krugman points out) because there may not be borrowers or the wealthy may choose to save their increased wealth, but giving rebates to the poor or hiring the unemployed will certainly increase spending (or even raising the minimum wage). What might be difficult to do is to control how much inflation is created, but it seems that a gradual approach that increases government spending on worthwhile projects (green energy, infrastructure, etc.) would be a pretty sure cure for deflation with some pretty positive side effects.
10
No, because when you go into a deflationary spiral, people hoard money (because it will be worth more tomorrow), causing consumption to drop, causing demand to drop, causing output to drop, causing more deflation... etc. That means, to compensate, the government has to increase spending at an ever expanding rate... does that ever happen? Is it even possible for productive government spending to expand that fast? Doubtful. The government cant just shove money at people through transfer payments, as they will just hoard it (see above).
17
Most poor or working class people can only save an insignificant proportion of their income and are conditioned by long-term trends to spend rather than save.
4
And making the situation GR mentions even worse is the fact that your average person (or legislator) doesn't understand crisis banking at all. In particular the well-known principle that the reserve bank must lend freely during a crisis appears difficult to grasp, and the idea that fiscal policy should be countercyclical seems fixedly beyond the intelligence of Congress as well as Obama.
1
In 2008 Bruce Bartlett authored an article in Forbes titled "What Would Keynes Do?" He points out that Keynes determined that the proper response in slowing economies is for government to increase spending to increase the money supply "velocity."
But Keynes pointed out that spending just to buy financial assets does very little good. The Swiss, and in their defense most other Western economies, 80 years later still don't believe him.
Nor did we learn from the financial problems in 1974, 2001 and 2008 that giving money back to people, especially rich people, as rebates or tax cuts also does not do any good. They save it or, increasingly fearful, pay off debt. Refunding and cutting taxes is just an exchange of assets that doesn't increase spending.
Keynes argued that what works is government purchasing goods and services to buy tangible "stuff", i.e., it has to use money like people do to "buy things."
Sadly, Conservatives here and across Europe, hate Keynes' ideas and have fiercely resisted them. But there is a limit to what central banks can do. Only government spending can compensate for the fall in private spending, increasing money velocity and stopping a descent into deflation.
What does Keynes say about deflation? He recommends "building pyramids and burying bank notes in deep mine shafts that had been filled in and had to be dug up." People would be employed and equipment bought.
The Swiss should try hiring Europe's masses to... build pyramids?
.
But Keynes pointed out that spending just to buy financial assets does very little good. The Swiss, and in their defense most other Western economies, 80 years later still don't believe him.
Nor did we learn from the financial problems in 1974, 2001 and 2008 that giving money back to people, especially rich people, as rebates or tax cuts also does not do any good. They save it or, increasingly fearful, pay off debt. Refunding and cutting taxes is just an exchange of assets that doesn't increase spending.
Keynes argued that what works is government purchasing goods and services to buy tangible "stuff", i.e., it has to use money like people do to "buy things."
Sadly, Conservatives here and across Europe, hate Keynes' ideas and have fiercely resisted them. But there is a limit to what central banks can do. Only government spending can compensate for the fall in private spending, increasing money velocity and stopping a descent into deflation.
What does Keynes say about deflation? He recommends "building pyramids and burying bank notes in deep mine shafts that had been filled in and had to be dug up." People would be employed and equipment bought.
The Swiss should try hiring Europe's masses to... build pyramids?
.
190
There's a lot of ignorance about Switzerland displayed in this and other comments.
Yes, QE in the USA just gives money to Goldman Sachs, banks, and rich people. But Switzerland has mechanisms for giving money to people who will actually spend it. Unemployment benefit, for example, is very generous in Switzerland, and it can last for 18 months, not just 6 months as in most US states. It helps that unemployment in Switzerland is very low (currently 3.4%). The Swiss might start listening to US-based economists when US unemployment is lower than Swiss unemployment. Until that happens, maybe Krugman and others should be listening to Swiss advice.
Yes, QE in the USA just gives money to Goldman Sachs, banks, and rich people. But Switzerland has mechanisms for giving money to people who will actually spend it. Unemployment benefit, for example, is very generous in Switzerland, and it can last for 18 months, not just 6 months as in most US states. It helps that unemployment in Switzerland is very low (currently 3.4%). The Swiss might start listening to US-based economists when US unemployment is lower than Swiss unemployment. Until that happens, maybe Krugman and others should be listening to Swiss advice.
9
VR Annapolis, MD
I know what the Swiss do.
That isn't working.
If there's any ignorance displayed it's in a post that jumps to conclusions about the knowledge of other posters because of the limited content of a 1500 character post.
Keynes was a pretty smart guy. Not exactly ignorant, and like Paul he'd likely be a little stumped by the fact that the Swiss are in trouble and what to do about it.
And he might recommend they build pyramids. But in fairness to you maybe you'd think that suggestion on his part also displayed ignorance.
.
I know what the Swiss do.
That isn't working.
If there's any ignorance displayed it's in a post that jumps to conclusions about the knowledge of other posters because of the limited content of a 1500 character post.
Keynes was a pretty smart guy. Not exactly ignorant, and like Paul he'd likely be a little stumped by the fact that the Swiss are in trouble and what to do about it.
And he might recommend they build pyramids. But in fairness to you maybe you'd think that suggestion on his part also displayed ignorance.
.
3
My list: high speed internet for everyone; repair/rebuild the interstate system; repair/rebuild mass transit; repair/enlarge the electric transmission system and increase anti-hacking safeguards. Figure out how to utilize people who don't want to work in offices--yes, some actually want to work with their hands--and build a system to train them to do so. There are a lot of ways to invest in America. Not yet too late.
2
There is so much turmoil and fear in the world that massive sums are flowing into Switzerland at a rate of return minus 0.75%. That's some serious fear!
What I take away from this article is that all of the world's economies are interdependent. We all sink or swim together. Europe is under serious recessionary pressure, Russia is being pushed off a cliff, the Middle East is blowing up, China is slowing down, and Japan is in a decades long deflation. Meanwhile, the US economy is just starting to perk up.
The world is in a very precarious state. It would not take much to set off a global downturn. Deflationary pressures indicate we are already on the edge of one.
Enter the GOP controlled Congress. These people live for the budget ax. They never saw a spending cut they didn't like. If the world is on the edge, this isn't the time to cut. This is the time to stimulate.
Throwing up barriers to trade (Cuba for instance), only makes these problems worse. There are billions of people in need of goods and services and the worlds stagnant economies can provide them, including renewable energy.
How can the major governments of the world continue to not recognize the condition we are in? Why continue on the same path that is leading to global stagnation? Mr. Krugman is terribly fearful of a deflationary spiral. He portrays them as nearly inescapable traps. He may be right. Why take the chance when there is little risk to stimulate with such low inflation.
What I take away from this article is that all of the world's economies are interdependent. We all sink or swim together. Europe is under serious recessionary pressure, Russia is being pushed off a cliff, the Middle East is blowing up, China is slowing down, and Japan is in a decades long deflation. Meanwhile, the US economy is just starting to perk up.
The world is in a very precarious state. It would not take much to set off a global downturn. Deflationary pressures indicate we are already on the edge of one.
Enter the GOP controlled Congress. These people live for the budget ax. They never saw a spending cut they didn't like. If the world is on the edge, this isn't the time to cut. This is the time to stimulate.
Throwing up barriers to trade (Cuba for instance), only makes these problems worse. There are billions of people in need of goods and services and the worlds stagnant economies can provide them, including renewable energy.
How can the major governments of the world continue to not recognize the condition we are in? Why continue on the same path that is leading to global stagnation? Mr. Krugman is terribly fearful of a deflationary spiral. He portrays them as nearly inescapable traps. He may be right. Why take the chance when there is little risk to stimulate with such low inflation.
138
Are the Central banks actually using the right tools to fight deflation ? Or are they in fact the cause of deflation ? Allowing too much debt to build up leads ultimately to deflation. Mr. Greenspan's low rate policy for a prolonged period led to several financial bubbles, got household debt to an unsustainable level, and the subsequent deleveraging led to deflationary spiral.
While we know that increasing interest rates from an historically normal level can dampen growth and reduce inflation, and cutting rates from a high level back to a normal level can encourage growth and boost inflation, what Central bankers did not know was whether cutting rates from normal levels to ultra-low levels, or from zero to negative levels (or using QE) will have the same effect. The experience of Japan in the last 25 years must not be discounted. I suspect they continued to suffer deflation because of large scale monetary easing, not in spite of it. Wasn't Einstein the once who once said "The definition of insanity is to do the same thing over and over again and expect a different result each time."? So why are the Central banks around the world still pursuing the same policy ? Are they insane ?
For example, Bruce here needs to borrow money to build his amps. If he is reassured by the policy makers that he will be able to continue funding his operation at very low interest rates, wouldn't that reduce his urge to increase the price of his amps ?
While we know that increasing interest rates from an historically normal level can dampen growth and reduce inflation, and cutting rates from a high level back to a normal level can encourage growth and boost inflation, what Central bankers did not know was whether cutting rates from normal levels to ultra-low levels, or from zero to negative levels (or using QE) will have the same effect. The experience of Japan in the last 25 years must not be discounted. I suspect they continued to suffer deflation because of large scale monetary easing, not in spite of it. Wasn't Einstein the once who once said "The definition of insanity is to do the same thing over and over again and expect a different result each time."? So why are the Central banks around the world still pursuing the same policy ? Are they insane ?
For example, Bruce here needs to borrow money to build his amps. If he is reassured by the policy makers that he will be able to continue funding his operation at very low interest rates, wouldn't that reduce his urge to increase the price of his amps ?
1
Why take the chance? Well I admit I am an economic ignoramus, but I am not bad at cynicism, and I can think of a good reason.
It appears that economic volatility acts as a money pump, pushing the wealth upward. Since the last crash the middle class has redistributed a good proportion of its assets to the upper. There is reason to hope that the next crash will largely wipe them out, especially when the banks appropriate their deposits to pay for their losses on derivative trading.
It appears that economic volatility acts as a money pump, pushing the wealth upward. Since the last crash the middle class has redistributed a good proportion of its assets to the upper. There is reason to hope that the next crash will largely wipe them out, especially when the banks appropriate their deposits to pay for their losses on derivative trading.
4
From a micro-economic perspective, yes. But when you're talking about an entire economy, i.e. macroeconomics, then raising interest rates will tend to dampen economic growth. If everybody were doing as well as Bruce, then we wouldn't be in a too low inflation economy and interest rates should rise.
Hi Professor Krugman,
I guess my question is what's wrong with negative interest rates? I know many de-growth thinkers back them and I know you're not de-growth. It seems like negative interest rates would encourage people to keep money circulating into productive uses (or at the very least, different hands). And if wealth inheritance is such a big problem, wouldn't this be a good thing?
I guess my question is what's wrong with negative interest rates? I know many de-growth thinkers back them and I know you're not de-growth. It seems like negative interest rates would encourage people to keep money circulating into productive uses (or at the very least, different hands). And if wealth inheritance is such a big problem, wouldn't this be a good thing?
2
Why would you put money in the bank with a negative rate? Wouldn't you be better off stuffing it in your mattress than lending it to a bank? And if you couple it with deflation, your money is worth more tomorrow than today-- again, you would stuff it in your mattress. Deflation doesn't work against wealth retention-- quite the opposite, it kills debtors as their debt swells in reak terms.
It is interesting to read Professor Krugman's analysis of the recent Swiss move. Which maybe the only you will hear the words shocked and Swiss together. What the Swiss have done is to show how deep this economic crisis is. When solid countries like Switzerland feel the need to devalue their currency by almost 20% percent in one day we are still in a very serious economic climate. We are also seeing a repeat of the 1930's beggar thy neighbor strategy of the worlds largest economies. But instead of tariffs, and movement of gold we have interest rates and currency devaluations. They have the same effect but they are easier to pass off. Krugman of course has actually embraced this line of thinking in the past. Saying that when countries got into economic problems currency devaluation was a good strategy. He certainly was supportive of Prime Minister Abe and his attempt to devalue the Yen. But just like in the 30's this strategy does not work if everyone is doing it.
3
The Swiss have not devalued their currency. It appreciated massively yesterday. What they had been doing in the previous few years was devaluing it (or more accurately stemming the forces to further appreciation).
8
Look again: Switzerland accidentally revalued their currency upwards by 20% (30% at its peak) within 1 day, making their deflationary problem that much worse.
2
You've got it exactly backwards. The Swiss Franc has shot up in value, plummeted.
4
The European Austerian-Nihilists and their GOP cousins collective grasp of economics is limited to Obsessive-Compulsive-Debt Disorder.
There is zero grasp of the devastating effect of collapsed demand on national GDPs or the inevitable worsening of national debt levels from collapsed demand, and no consideration of exploding government welfare payments to the unemployed due to collapsed labor markets.
The austerian view of economics is nothing more than the continuous ringing of the 'debt' bell to the exclusion of a collapsing reality and an economy careening into perpetual reverse.
Economic demand will remain collapsed by EURO-mismanagement and sadomonetarism and debtor's prisons and unemployment havens for half of Europe until the German banksters admit that economically strangling their neighbors is not a nice bedside manner.
If Germany continues to keep their foot on Europe's economic throat, they will break the Euro in half, which might very well be the best solution for what increasingly looks like the failed Euro experiment.
The 'missing link' is the estimated $32 trillion in global offshored tax havens.
That money doubly depresses the global economy as it represents a form of stolen wages AND a massive tax evasion depriving national governments of revenue and economic velocity.
The solution is to cancel their debt obsession, claw back some of the 0.1% trillions and raise taxes on the debt-mongering tax evaders who keep killing demand and the global economy.
There is zero grasp of the devastating effect of collapsed demand on national GDPs or the inevitable worsening of national debt levels from collapsed demand, and no consideration of exploding government welfare payments to the unemployed due to collapsed labor markets.
The austerian view of economics is nothing more than the continuous ringing of the 'debt' bell to the exclusion of a collapsing reality and an economy careening into perpetual reverse.
Economic demand will remain collapsed by EURO-mismanagement and sadomonetarism and debtor's prisons and unemployment havens for half of Europe until the German banksters admit that economically strangling their neighbors is not a nice bedside manner.
If Germany continues to keep their foot on Europe's economic throat, they will break the Euro in half, which might very well be the best solution for what increasingly looks like the failed Euro experiment.
The 'missing link' is the estimated $32 trillion in global offshored tax havens.
That money doubly depresses the global economy as it represents a form of stolen wages AND a massive tax evasion depriving national governments of revenue and economic velocity.
The solution is to cancel their debt obsession, claw back some of the 0.1% trillions and raise taxes on the debt-mongering tax evaders who keep killing demand and the global economy.
339
You said it, "the devastating effects of collapsed demand". That was what we had at the end of the Bush Administration. Spending collapsed, state government revenue disappeared, government workers were getting laid off, private industry saw the writing on the wall, decreased demand, and started laying off workers and so began the spiral to the Great Recession. The first stimulus package was just enough to let Bush get out of town (Washington, DC) without being tarred and feathered. The second stimulus at the beginning of the President Obama's term was another lifeline. Has it been enough?
18
S,
"Half" is about what the Euro is worth now. The Swiss are buying them for almost parity today and charging to store them. Most of Socialist Europe is ready to go down the tubes again. When you can buy RPGs and automatic weapons at Belgian train stations people will be nervous about where they can keep their wealth.
The Swiss don't believe in "multiculturalism", deficit spending", or the Euro! That's why people feel safe keeping their money there.
"Half" is about what the Euro is worth now. The Swiss are buying them for almost parity today and charging to store them. Most of Socialist Europe is ready to go down the tubes again. When you can buy RPGs and automatic weapons at Belgian train stations people will be nervous about where they can keep their wealth.
The Swiss don't believe in "multiculturalism", deficit spending", or the Euro! That's why people feel safe keeping their money there.
7
Your further analysis of Prof. Krugman's article is wonderfully helpful! For those of us who haven't studied economics, you have helped to carve a path of understanding through the wilderness.
2
But the desire by some in the U.S. to tighten monetary policy and hike interest rates isn't necessarily to scotch an inflation that isn't yet visible; but to reestablish a bond market that incentivizes people who live largely on fixed incomes -- retirees -- to get the heck out of this bubbled equities market and back into what should be far more stable bonds.
There is no incentive whatsoever to save by traditional methods so long as interest rates are so low; so, this even affects the middle-aged productive, who should have some healthy percentage of their savings in bonds and don't. But the biggest effect is that people who have saved all their lives to live comfortably in retirement often ... aren't.
Switzerland just cut their throats to save cutting their noses. We should find other ways to save our own noses but guard our own throats.
There is no incentive whatsoever to save by traditional methods so long as interest rates are so low; so, this even affects the middle-aged productive, who should have some healthy percentage of their savings in bonds and don't. But the biggest effect is that people who have saved all their lives to live comfortably in retirement often ... aren't.
Switzerland just cut their throats to save cutting their noses. We should find other ways to save our own noses but guard our own throats.
4
Richard,
Both the Germans and now the Swiss are charging not paying the rest of Europe to hold their money. The Euro is done. The Greeks will soon elect a government that will bail out on the Euro and European (German) debt. The Euro has lost value for the last 6 months because of this and other fears. The franc cap was costing the Swiss more each week, with no end in sight. The Swiss are now buying Euros at about parity and charging a commission to the sellers. That there are no shortage of takers speaks volumes about how Europe thinks things are going in Europe.
Once before the Swiss blew up their bridges and out-waited the Germans, this may be a repeat and perhaps the Swiss know something we don't, but should!
Both the Germans and now the Swiss are charging not paying the rest of Europe to hold their money. The Euro is done. The Greeks will soon elect a government that will bail out on the Euro and European (German) debt. The Euro has lost value for the last 6 months because of this and other fears. The franc cap was costing the Swiss more each week, with no end in sight. The Swiss are now buying Euros at about parity and charging a commission to the sellers. That there are no shortage of takers speaks volumes about how Europe thinks things are going in Europe.
Once before the Swiss blew up their bridges and out-waited the Germans, this may be a repeat and perhaps the Swiss know something we don't, but should!
10
Bonds don't exist to provide you with income.
2
Chris:
If they didn't, nobody would buy them, and Detroit may as well give up.
If they didn't, nobody would buy them, and Detroit may as well give up.
2
This is all about confidence. Demand is what we all need - that will set the stage for capital spending and job growth. But demand is itself a decision to spend. It's committing to pay, to decrease one's cash in order to obtain something. And no one, no individual, no company, will make that commitment without confidence that future income will be there.
And for the last thirty years the spread and growth of "free market" dogma has been fueled by killing confidence. You like your job? Do it for less pay or less benefits, or we'll close down and ship it all overseas. You want us to build a plant? Zero our taxes and give us secured subsidized loans or we won't.
What was the big threat when the health care law was being debated? "It'll be a job killer" the business community was wailing. Translated, it meant that business knew the insecurity we all have regarding jobs, an insecurity they've been nurturing ever since Reagan fired the Patco strikers.
Every debate over increasing the minimum wage reflexively brings stern warnings of job losses. It doesn't matter that data from all previous minimum wage increases shows no correlation to subsequent unemployment rates. The big money interests know their cudgel and are happy to use it.
Perhaps, as other commenters have noted, falling energy prices will put money in middle-income hands and spark new demand. If we're really lucky, we'll finally grow confident enough to sneer back at the bullies, and break this cycle for good.
And for the last thirty years the spread and growth of "free market" dogma has been fueled by killing confidence. You like your job? Do it for less pay or less benefits, or we'll close down and ship it all overseas. You want us to build a plant? Zero our taxes and give us secured subsidized loans or we won't.
What was the big threat when the health care law was being debated? "It'll be a job killer" the business community was wailing. Translated, it meant that business knew the insecurity we all have regarding jobs, an insecurity they've been nurturing ever since Reagan fired the Patco strikers.
Every debate over increasing the minimum wage reflexively brings stern warnings of job losses. It doesn't matter that data from all previous minimum wage increases shows no correlation to subsequent unemployment rates. The big money interests know their cudgel and are happy to use it.
Perhaps, as other commenters have noted, falling energy prices will put money in middle-income hands and spark new demand. If we're really lucky, we'll finally grow confident enough to sneer back at the bullies, and break this cycle for good.
104
Excellent.
1
When will macroeconomists recognize that economic prosperity cannot be created by central bank gimmicks and machinations of statist politicians? All of the central bank manipulation of interest rates and beggar-thy-neighbor currency devaluations, as well as government attempts to plan economies and control wages and prices, are ultimately offsetting at best and destructive at worst.
Governments create economic growth by creating the most stable platform for private entrepreneurial innovation and business creation and then getting out of the way. It is the productivity of private citizens, not government bureaucrats, central bankers, and politicians, that ultimately drives prosperity and wealth creation.
There is much that governments can do to foster growth that they are not doing. Simplifying tax policy with lower rates and fewer loopholes, lowering trade barriers, simplifying and eliminating duplicative regulations and mandates on business – all of these actions would do far more to avert deflation than playing more games with the supply and price of money.
Governments create economic growth by creating the most stable platform for private entrepreneurial innovation and business creation and then getting out of the way. It is the productivity of private citizens, not government bureaucrats, central bankers, and politicians, that ultimately drives prosperity and wealth creation.
There is much that governments can do to foster growth that they are not doing. Simplifying tax policy with lower rates and fewer loopholes, lowering trade barriers, simplifying and eliminating duplicative regulations and mandates on business – all of these actions would do far more to avert deflation than playing more games with the supply and price of money.
3
The government and private businesses (the big corporations) are working together to milk you drive, if you are in the private sector. What little government there is that is protecting you is what will be removed if the government (which represents all people) does what you ask. Be careful what you wish for.
3
We see lots of assertions to that effect, but astonishingly little evidence. Kansas has lately adopted such an approach. The effects are quite opposite to those you predict.
3
Switzerland is a wonderful example of people living in countries not practicing austerity wanting to have the currency of a country that practices austerity
(Switzerland didn't have a negative budget balance in the last 8 years).
(Switzerland didn't have a negative budget balance in the last 8 years).
1
I seldom read Mr. Krugman's columns because the invective/information ratio is too high. I read this column because I thought he would be writing about a topic —the international monetary system— that he surely understands, and would explain to me how it is that a postage stamp country, Switzerland, could through the relaxation of its ceiling on the value of the Franc, set the Eurozone into ventricular fibrillation. I was disappointed. Although the invective was down a few decibels, he was soon in the saddle of his hobby horse, the lurking danger of deflation. I am thus left with the feeling that the entire project of the Euro zone is unsound at its core, but I don't understand exactly why this should be so.
4
Krugman and others have explained this before. Having a monetary union without a fiscal union presents huge problems. The countries in Europe all have very different economies. So when there is a crisis the shocks are asymmetric.
Deflation is not Krugman's hobby horse. It is a very real problem that is afflicting much of the western world and could also afflict the US if we are not careful.
Deflation is not Krugman's hobby horse. It is a very real problem that is afflicting much of the western world and could also afflict the US if we are not careful.
154
James, you should read the Professor regularly, as I do, for the entertainment value. But if what you're looking for is a purer econ focus, his blog is far superior to his columns. In his columns he seeks to evangelize a political ideology, twice weekly, actually more predictably and dependably than Bernie Sanders -- while in his blog he tends to be far wonkier.
But the Professor is quite convincing on why the "entire project of the Euro zone is unsound at its core", and I've agreed with him on the answer to this question for many years: it's unsound because nations have interests that they're unwilling to compromise for a greater good. Indeed, if our states had started out over 200 years ago seeking to subsidize one another through a tax system, instead of developing this tradition incrementally over many years, there wouldn't BE a United States of America. And imagine in that instance the disappointment of Gail Collins that she couldn't complain about blue state subsidies to red states.
But the Professor is quite convincing on why the "entire project of the Euro zone is unsound at its core", and I've agreed with him on the answer to this question for many years: it's unsound because nations have interests that they're unwilling to compromise for a greater good. Indeed, if our states had started out over 200 years ago seeking to subsidize one another through a tax system, instead of developing this tradition incrementally over many years, there wouldn't BE a United States of America. And imagine in that instance the disappointment of Gail Collins that she couldn't complain about blue state subsidies to red states.
6
@James The Euro/Eurozone is working just fine for Germany, Austria, Netherlands, Finland, etc who made their economic adjustments early on, because they understood the common currency demanded relative efficiency.
Germany increased its retirement age to 67 (while it is stuck at 55-60 at Greece, France, etc), firmly held the line on wages (not even having a minimum wage), etc. They became more competitive vis-a-vis their Eurozone neighbors who decided to party when the Euro came.
If Greece and even Portugal and a couple of other countries exited the Euro, that means nothing for $17T Eurozone economy and 400,000,000 people market. There are more people trying to get into the Euro, than to get out.
Professor Krugman just believes that he needs to vilify Germany in order to save tax and spend France et al. He believes the Germans are the "bad guys", because they were smart, sacrificed, and are benefiting.
Germany exports 55% of GDP. The lower Euro is a dream come true, and is a nice anti-deflationary hedge as well.
Nothing broken with the Euro. A lot broken with France, Greece, etc.
Germany increased its retirement age to 67 (while it is stuck at 55-60 at Greece, France, etc), firmly held the line on wages (not even having a minimum wage), etc. They became more competitive vis-a-vis their Eurozone neighbors who decided to party when the Euro came.
If Greece and even Portugal and a couple of other countries exited the Euro, that means nothing for $17T Eurozone economy and 400,000,000 people market. There are more people trying to get into the Euro, than to get out.
Professor Krugman just believes that he needs to vilify Germany in order to save tax and spend France et al. He believes the Germans are the "bad guys", because they were smart, sacrificed, and are benefiting.
Germany exports 55% of GDP. The lower Euro is a dream come true, and is a nice anti-deflationary hedge as well.
Nothing broken with the Euro. A lot broken with France, Greece, etc.
1
We just went through a period of deflation, fortunately it was prevented from getting worse with the rescue of the banks. Those who managed to keep the credit system from failing saved us from another crash like the 1929 one.
The great depressions was complete deflation. Thousands of banks failed, there was no deposit insurance, the stock market was used as a kiting scheme, National City Bank of New York was selling worthless stock to its customers.
We saw a partial recovery, then a relapse when government aid was cut for fear of inflation. The public has a greater fear of inflation as we have been experiencing it for many years now, and the conservative economists have been stoking that fear, by predicting a period of hyper inflation, primarily caused by the Fed printing money.
Most people do not remember real deflation. A couple of recessions maybe, but have no understanding of it. As I like to ask, who profits from the fear of inflation? What is in it for them? If you have loaned money to someone, the value of that loan is increased, if it is defaulted on, you get the asset it is for, at low cost. As income falls, property is lost, deflation increases, it is a formula for the wealthy to acquire even more property and principal.
From experience, the way to stop deflation, is to put more money into the economy, that has been shown to work. At present the GOP and its minions are promoting the fear of inflation, deflation not withstanding.
The great depressions was complete deflation. Thousands of banks failed, there was no deposit insurance, the stock market was used as a kiting scheme, National City Bank of New York was selling worthless stock to its customers.
We saw a partial recovery, then a relapse when government aid was cut for fear of inflation. The public has a greater fear of inflation as we have been experiencing it for many years now, and the conservative economists have been stoking that fear, by predicting a period of hyper inflation, primarily caused by the Fed printing money.
Most people do not remember real deflation. A couple of recessions maybe, but have no understanding of it. As I like to ask, who profits from the fear of inflation? What is in it for them? If you have loaned money to someone, the value of that loan is increased, if it is defaulted on, you get the asset it is for, at low cost. As income falls, property is lost, deflation increases, it is a formula for the wealthy to acquire even more property and principal.
From experience, the way to stop deflation, is to put more money into the economy, that has been shown to work. At present the GOP and its minions are promoting the fear of inflation, deflation not withstanding.
69
David, you and the professor don't seem to understand that in the hyper-financialized world we live in, "printing money" does not lead to inflation of common goods and services. It simply leads to inflation of asset prices (stocks, bonds, investment real estate) as we have seen since 2009.
In the great depression every dollar printed (and they didn't print enough) was immediately spent (many times over) in the economy. Buying food, shelter, fuel, and later military equipment.
Now, every dollar printed is going primarily into buying bonds, stocks and apartments in New York and London, and every Euro printed is doing the same, in addition to re-capitalizing the banks.
So very little leaks into the main-street economy.
In the great depression every dollar printed (and they didn't print enough) was immediately spent (many times over) in the economy. Buying food, shelter, fuel, and later military equipment.
Now, every dollar printed is going primarily into buying bonds, stocks and apartments in New York and London, and every Euro printed is doing the same, in addition to re-capitalizing the banks.
So very little leaks into the main-street economy.
5
Baron you are correct, but you fail to point out that the reason so little has leaked into main street is the Republicans' obstruction to federal deficit spending that would get the new money to main street, e.g. infrastructure, education, research, etc.,
1
Lets have a look at numbers:
Deflation is depicted in this column as being detrimental to growth.
But once you adjust the GDP growth in Japan, for the fact that its population is shrinking, and the GDP of the US, for the fact that its population is increasing, that is the GDP growth per capita, you discover 3 interesting facts:
1. The Japanese economy grew faster in GDP per head than the US, 2003 to 2007, or 2001 to 2010 or pretty much any period you pick.
2. Japan over those periods "suffered" from deflation
3. The US over those periods "enjoyed" from inflation
http://www.inflation.eu/inflation-rates/japan/historic-inflation/cpi-inf...
http://www.tradingeconomics.com/japan/gdp-per-capita
Deflation is depicted in this column as being detrimental to growth.
But once you adjust the GDP growth in Japan, for the fact that its population is shrinking, and the GDP of the US, for the fact that its population is increasing, that is the GDP growth per capita, you discover 3 interesting facts:
1. The Japanese economy grew faster in GDP per head than the US, 2003 to 2007, or 2001 to 2010 or pretty much any period you pick.
2. Japan over those periods "suffered" from deflation
3. The US over those periods "enjoyed" from inflation
http://www.inflation.eu/inflation-rates/japan/historic-inflation/cpi-inf...
http://www.tradingeconomics.com/japan/gdp-per-capita
3
No. The Japanese economy is smaller now than it was in 1993. The US economy is much larger than it was in 1993. In almost no periods of note would Japan have outperformed the US. This is utter nonsense.
25
Maybe you don't understand DGA's point. He was talking about on a per capita basis. Lets see in 2001 you have a gdp of 1 million dollars in 2 separate nations called A and B. A & B start out with equal populations. 5 years later A's population is the same and so is its GDP. Nation B now has a population that 20% larger but it's GDP has grown by 10 percent. All other things being equal, on a per capita basis, the citizens of nation A are doing better than those of nation B.
I'm not guaranteeing the facts of DMG's case. But, in principle, it's a perfectly valid argument. What's more, it goes to the core of the question "What's an economy for?" Does just the gross number matter, or how it's distributed?
I'm not guaranteeing the facts of DMG's case. But, in principle, it's a perfectly valid argument. What's more, it goes to the core of the question "What's an economy for?" Does just the gross number matter, or how it's distributed?
Take your exact same chart and put the start date at 1992. Then get back to us with our revised views: the USA line is much higher than the Japan line.
Sure, Yellen shouldn't tighten - just let U.S. interest rates keep drifting downward, as they have been the last few weeks. And the result: the value of the Euro, which the Professor highlights as the root of all their problems, has barely budged vs. the dollar. The Euro needs to go MUCH lower (until 1 Euro = 1 dollar), but as long as U.S. interest rates are only a couple of percent higher than German rates, there won't be the mass exodus that is needed.
Additionally, Krugman may be right about needed government stimulus in America, but he still hasn't explained why reducing demand via budget cuts is bad, but reducing demand via tax hikes is good. Maybe he can ask P.M. Abe how that is working out.
Additionally, Krugman may be right about needed government stimulus in America, but he still hasn't explained why reducing demand via budget cuts is bad, but reducing demand via tax hikes is good. Maybe he can ask P.M. Abe how that is working out.
2
Because spending would be for infrastructure and cause jobs to be created to pave the roads, fix bridges etc.
As far as taxes would only be increased on the one tenth of one percent, like the Wal-Mart heirs. Taxes on then would not cause lower consumption.
As far as taxes would only be increased on the one tenth of one percent, like the Wal-Mart heirs. Taxes on then would not cause lower consumption.
63
It is really easy to win an argument by putting words in your opponent's mouth. However, this rhetorical strategy is generally frowned upon.
Dr. Krugman is NOT calling for higher taxes in our current situation, and has not done so for several years. He does ask for fiscal spending paid for by borrowing at the extemely low rates that are currently on offer to our government.
Fiscal spending would pay for repair of our crumbling infrastructure. Eventually we will be required to repair those bridges etc. Why not do that now while our workers are idle, and the cost is so low?
Fiscal spending would improve education. How much greater contribution to our economy, over his or her lifetime, will a typical college graduate make, compared with a high school graduate? How much more in taxes will such a graduate pay over his or her lifetime, compared with a high school graduate. Surely this support for education would be a good investment, especially when the cost of borrowing is so low.
Dr. Krugman is NOT calling for higher taxes in our current situation, and has not done so for several years. He does ask for fiscal spending paid for by borrowing at the extemely low rates that are currently on offer to our government.
Fiscal spending would pay for repair of our crumbling infrastructure. Eventually we will be required to repair those bridges etc. Why not do that now while our workers are idle, and the cost is so low?
Fiscal spending would improve education. How much greater contribution to our economy, over his or her lifetime, will a typical college graduate make, compared with a high school graduate? How much more in taxes will such a graduate pay over his or her lifetime, compared with a high school graduate. Surely this support for education would be a good investment, especially when the cost of borrowing is so low.
14
Tax hikes ensure that the money will be spent, not saved.
5
The Fed Funds Rate at at target of .25% looks like a great deal by comparison to -.75% Paying to loan money won't work for long. The reason the Swiss Franc looked like a safe-haven was it's partial peg to gold, something older Americans can relate to. But when your major customers issue lots of a fiat currency, it's hard to remain competitive for long. Deflationary forces are in play because of global competition: blue and white collar, as well as tech, legal, and medical workers can all be found for less beyond our shores. Why pay a US paralegal $125 an hour when an Indian can research US case law for $15? We already have a bifurcation of wages in the US when UAW autoworkers still make 2X more than their non-UAW brethren. There is no way to put the genie back in the bottle, without retraining. That's something we have largely avoided until the President's recent offer to fund 2 years of Community College, but that won't help 30-60 year olds who need immediate retraining. Where mature economies can take a leadership role is rethinking our economic equation to include the true cost of every good and service. Just today the Times had an article on how the world's oceans are on the precipice of collapse. What is the cost of clean water, or restocking the world's fisheries? There is so much work to be done, we need some very bright economists to mandate we recalculate the cost of business to include that which we now consider 'free.' Fish are not free if they're none.
5
Retraining will produce surpluses of people in more and more fields. Music and poetry are already fields where it is difficult to make a living because so many are doing it. More and more, people will finish training and never use the skills they acquired.
1
Something older Americans can relate to? Who can relate to that? The US went off the gold standard in the 1930s. Then there was a partial gold standard under Bretton Woods (although not really) which was abandoned in hte 1970s.
1
The stock markets do not understand what prof. Krugman is talking about. Banks do not understand either. Look at the 4Q earning results of major banks. Almost of all major banks failed in the fixed income trading. These banks betted that bond yields to go up toward the end of last year. Instead, bond yields have been declining and declining without bottom, especially after the decision by Swiss National Bank. I bet banks have made another trading mistake in the 1Q of this year. They have been wrong for a long time since 2008 financial crisis.
10
If the greatly discounted prices of oil and oil products continues as predicted through the year until next year when it is predicted to rise, the money saved will find a way back into the costs of goods and services and might lead to deflation, mostly because as reported yesterday, the windfall of money saved by consumers was not turned around in consumer spending last quarter.
I couldn't begin to predict the future. I'm split between extraordinary consumer spending leading to expansion of the economy, or, the excess cash was squierreled away in investments that are no longer allowed to grow the economy. That's really bad news. That means the consumers won't spend and the corporations won't either claiming, you guessed, lack of demand!
There is of course a dwell in the effects of lower oil prices. The savings won't stimulate the economy, I'm guessing until after the winter.
Just imagine how much excess cash will now be available to the worlds economies. A savings of about 50 dollars for every barrel times 93 million barrels per day. That's about 4.5 billion dollars per day or about 1.5 Trillion dollars per year left in consumers pockets.
It may be small by international monetary measures, but even small percentages mean economic growth.
I couldn't begin to predict the future. I'm split between extraordinary consumer spending leading to expansion of the economy, or, the excess cash was squierreled away in investments that are no longer allowed to grow the economy. That's really bad news. That means the consumers won't spend and the corporations won't either claiming, you guessed, lack of demand!
There is of course a dwell in the effects of lower oil prices. The savings won't stimulate the economy, I'm guessing until after the winter.
Just imagine how much excess cash will now be available to the worlds economies. A savings of about 50 dollars for every barrel times 93 million barrels per day. That's about 4.5 billion dollars per day or about 1.5 Trillion dollars per year left in consumers pockets.
It may be small by international monetary measures, but even small percentages mean economic growth.
11
In addition.......that 1.5 Trillion dollars saved with cheaper oil equates to about 2 percent of world GDP. That extra money in consumers pockets could be spent generating new jobs and manufacturing further escalating economic growth. The last I heard, our economy was growing at about a 3 percent annual rate. I wonder what it would be if that oil savings were spent?
That simple 2 percent spent could be a real catalyst. People should spend the excess money they save on energy efficiency efforts to further reduce oil demand. Seal the living space of your home or apartment to save both heated and cooled air and add more insulation to the attic, floors, and ductwork. Buy a new fuel efficient car. These expenditures will reinforce manufacturing and further reduce our oil use keeping prices low.
That simple 2 percent spent could be a real catalyst. People should spend the excess money they save on energy efficiency efforts to further reduce oil demand. Seal the living space of your home or apartment to save both heated and cooled air and add more insulation to the attic, floors, and ductwork. Buy a new fuel efficient car. These expenditures will reinforce manufacturing and further reduce our oil use keeping prices low.
3
Much of the money that from oil price s has been eaten up by attempts to pay down individual debt. Banksters are still charging high interest on credit cards which has been the main engine for much of our economic growth. Banks are trying to make up losses in other areas where they have made unwise choices. But to many middle class people paying down credit card debt running at upwards of 12 percent makes more sense than saving the money with no return or buying things that pay no return. Lured into spending on things they could not easily afford many in the middle class are leery of falling into the trap once again and plan to start afresh. When there is no inflation to spur buying now the elimination of debt makes sense
5
But again, that is mere bagatelle compared to the associated rise in unemployment and the subsequent debt defaults and financial crisis, which results in depression.
Krugman is clutching at the straws. In his zeal to advocate for the tax and spend policies he so dearly loves, he would use any excuse and every example to drumbeat the deflation scare. ECB bond buying - deflation and the Us government needs to spend more. Swiss franc appreciates? Deflation and the US government needs to spend more. Abenomics - US government needs to spend more. Terrorism in France -US government needs to increase spending.
Give it up professor, it is getting embarrassing, this incessant cheerleading for more tax and even more spend.
Give it up professor, it is getting embarrassing, this incessant cheerleading for more tax and even more spend.
6
One of the things that got us into this mess was not "more tax and even more spend" but LESS tax and even more spend, a legacy of Reaganomics and Bush II. The track record of the party that pretends to be fiscally responsible is incompetence in handling the people's money.
616
Agree. If a good enough portion of all the massive sums that were drawn to speculate on the values of home mortgages circa 2001-2008 had been taxed away, we might well now have a spanky new infrastructure paying massive dividends. But I guess new bridges and public transportation needs public money; so much for them...
34
Do you still not get it. Tax and spend is far more preferable than the GOP MO — spend and borrow, a tactic that emptied federal coffers and left the US vulnerable when bankers' greed sent the world's economies reeling.
The right-wing economic model is akin to a breadwinner stating that he can make more money by taking a pay cut. That does not make sense.
And you seem to got out of your way to misunderstand what Prof. Krugman has maintained all along — spend when the economy is ailing, pay down the debt when the economy is going great guns.
Instead of paying down debt the Bush administration thought it would be a keen idea to cut taxes (revenue) — even as two bungled wars raged. Please explain the sense of that.
There's more than you have wrong, but the Times allows only so much space.
The right-wing economic model is akin to a breadwinner stating that he can make more money by taking a pay cut. That does not make sense.
And you seem to got out of your way to misunderstand what Prof. Krugman has maintained all along — spend when the economy is ailing, pay down the debt when the economy is going great guns.
Instead of paying down debt the Bush administration thought it would be a keen idea to cut taxes (revenue) — even as two bungled wars raged. Please explain the sense of that.
There's more than you have wrong, but the Times allows only so much space.
58
According to Poe's unusual take on a descent into a maelstrom, (many decades before Stephen Hawking and black holes) the best way to exit a giant whirlpool alive, although made much older for the experience, is hanging onto a floating barrel that is less likely to be drawn through the vortex. In monetary terms when the fate of nations hang in the balance, experiments with the wrong policies have led to unemployment, suffering, instability, and wars. It may be that none of the proposed answers are really the best one. Maybe the human race needs to evolve, and play a part in the creation of a new reality. One where they outgrow the need for, and the use of, money.
10
Will Republicans learn from the Swiss?
Their base would find such deeds amiss,
So they won't like as not,
With deflation the plot,
Of utter disaster the kiss.
Their base would find such deeds amiss,
So they won't like as not,
With deflation the plot,
Of utter disaster the kiss.
23
Deflation may be something to fear, but so is inflation - if it gets out of hand. Right now, the plunge in oil prices is having a negative effect on the cost of living worldwide. But if oil prices are not included, what is the result? In the U.S., there's an upward trend in the cost of several things, such as housing prices and rents, at least in some areas. Many services are also increasing in cost. The U.S., at least, doesn't seem to be in danger of deflation in the near term, though inflation will likely remain low, especially if Republicans engage in their usual attempts at budget-cutting.
Governments have to walk a fine line between preventing deflation and also limiting the amount of acceptable inflation. In the 1950-70 period, the U.S. Federal reserve was generally successful in manipulating the money supply to walk that fine line. Then things got out of hand in the '70's when oil prices shot up and increased inflationary pressure on the entire economy. The '70's are not a time the banks like to remember, as people with loans payed them off in much cheapened dollars. People on fixed incomes suffered greatly, and wages had a difficult time keeping up with prices. An unstable currency causes troubles for the economy whether it goes up or down.
Yes, deflation would be a job-killer. But inflation has its own set of problems. Both should be avoided.
Governments have to walk a fine line between preventing deflation and also limiting the amount of acceptable inflation. In the 1950-70 period, the U.S. Federal reserve was generally successful in manipulating the money supply to walk that fine line. Then things got out of hand in the '70's when oil prices shot up and increased inflationary pressure on the entire economy. The '70's are not a time the banks like to remember, as people with loans payed them off in much cheapened dollars. People on fixed incomes suffered greatly, and wages had a difficult time keeping up with prices. An unstable currency causes troubles for the economy whether it goes up or down.
Yes, deflation would be a job-killer. But inflation has its own set of problems. Both should be avoided.
7
Sorry, but you've got your facts wrong. Core inflation (i.e., where the price of oil and food are stripped out) fell to a seasonal rate of 0.1% in November while the Consumer Price Index (includes just about everything) fell to 0.3% on an annualized basis. Both of these numbers are dangerously low. Economies typically need about 2 to 3.5% percent annually in order to function properly.
33
In the Seventies and early Eighties, the banks just raised interest rates to keep place with inflation. They also shifted to ARMs. The rate on my first mortgage loan in 1980 was 12.5%. Yeah, the banks got burned on their older loans, but the baby boom generation was just moving into the housing market then so there was no shortage of housing demand. The banks recouped their downsides very nicely through us.
4
The cure for inflation is known and effective. The cure for deflation may work, but never quickly. Of course both should be avoided, but let's be sure to avoid the problem without a good solution.
9
Hoarding isn't just unhealthy for the hoarders, it's making the whole global neighborhood sick unto death.
We should follow Picketty's advice and institute a global wealth tax to help the Swiss. Barring that unlikelihood, we might follow Elizabeth Warren's advice and just break up the banks.
Unfortunately, the possessors of wisdom and the owners of obscene wealth live in different universes.
The capitalist malefactors are, of course, hysterical over the market volatility and even the feeblest belated efforts to rein them in. Their response to economic turmoil has been put their legalized bribery into overdrive as they drill the already toothless Dodd-Frank law into a gaping maw of uselessness.
As if that were not enough, leaked clauses in the top secret corporate coups known as "trade" deals reveal that the multinationals aim to destroy regulations in European (TTIP) and Pacific (TPP) countries as well.
It's capitalism on crack. And as the crash from the latest orgy of unbridled excess looms, all we can do is brace ourselves. and wish that instead of listening to Jamie Dimon whine, we could be watching him and his pals do a perp walk.
"The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power." - FDR.
We should follow Picketty's advice and institute a global wealth tax to help the Swiss. Barring that unlikelihood, we might follow Elizabeth Warren's advice and just break up the banks.
Unfortunately, the possessors of wisdom and the owners of obscene wealth live in different universes.
The capitalist malefactors are, of course, hysterical over the market volatility and even the feeblest belated efforts to rein them in. Their response to economic turmoil has been put their legalized bribery into overdrive as they drill the already toothless Dodd-Frank law into a gaping maw of uselessness.
As if that were not enough, leaked clauses in the top secret corporate coups known as "trade" deals reveal that the multinationals aim to destroy regulations in European (TTIP) and Pacific (TPP) countries as well.
It's capitalism on crack. And as the crash from the latest orgy of unbridled excess looms, all we can do is brace ourselves. and wish that instead of listening to Jamie Dimon whine, we could be watching him and his pals do a perp walk.
"The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power." - FDR.
642
"Hoarding isn't just unhealthy for the hoarders, it's making the whole global neighborhood sick unto death."
I direct you back to Sam Polk's column from last January where he states that BigMoney types suffer from an addiction to concentrated wealth (greed) and power.
Addicts don't care about the system, nor the consequences, to them or to other people: they just need their fix, their next hit. Now. Let the future and all others be damned.
Normally an addiction is not relieved until a person hits rock bottom. Unfortunately an addiction to greed and power never leads to an addict hitting rock bottom, instead everyone else is negatively effected.
Incidentally, not all BigMoney types are addicts. You can tell the addicts by whether or not they care for something else. A good example is climate change. Presumably even the rich, &/or their children, will have to live on the planet in the foreseeable future. Lots of rich people are putting their skin (and their backs) into solving this problem. But not the Junkie: he needs his fix now, let the future be damned.
I don't see us getting policy right until it becomes a common accepted view that the great majority of the 1/10th%ers (those on the right) are nothing more than power and money junkies and everything they want and espouse is nothing more than the smack talk of an addict.
I direct you back to Sam Polk's column from last January where he states that BigMoney types suffer from an addiction to concentrated wealth (greed) and power.
Addicts don't care about the system, nor the consequences, to them or to other people: they just need their fix, their next hit. Now. Let the future and all others be damned.
Normally an addiction is not relieved until a person hits rock bottom. Unfortunately an addiction to greed and power never leads to an addict hitting rock bottom, instead everyone else is negatively effected.
Incidentally, not all BigMoney types are addicts. You can tell the addicts by whether or not they care for something else. A good example is climate change. Presumably even the rich, &/or their children, will have to live on the planet in the foreseeable future. Lots of rich people are putting their skin (and their backs) into solving this problem. But not the Junkie: he needs his fix now, let the future be damned.
I don't see us getting policy right until it becomes a common accepted view that the great majority of the 1/10th%ers (those on the right) are nothing more than power and money junkies and everything they want and espouse is nothing more than the smack talk of an addict.
68
Yes, indeed, Karen - why we've been almost overcome today with pity for the bankers following Dimon's complaint that the banks are under attack:
http://www.huffingtonpost.com/2015/01/14/jamie-dimon-banks-assault_n_647...
But we stopped ourselves from reaching for the hanky when we remembered that turn-about is fair play, considering the assault we've all been under with the rigging of LIBOR, the rigging of the gold price, the serial instances of various banks/banstaZ admitting to international conspiracies in thievery, etc., and the wrist-slaps that bankstaZ find so onerous.
Not nearly onerous enough, since the bankstaZ are proceeding to gut Dodd-Frank in fits and starts.
http://www.huffingtonpost.com/2015/01/14/jamie-dimon-banks-assault_n_647...
But we stopped ourselves from reaching for the hanky when we remembered that turn-about is fair play, considering the assault we've all been under with the rigging of LIBOR, the rigging of the gold price, the serial instances of various banks/banstaZ admitting to international conspiracies in thievery, etc., and the wrist-slaps that bankstaZ find so onerous.
Not nearly onerous enough, since the bankstaZ are proceeding to gut Dodd-Frank in fits and starts.
46
Jefferson saw it a little differently than Roosevelt:
"When government fears the people, there is liberty. When the people fear the government, there is tyranny. "
"When government fears the people, there is liberty. When the people fear the government, there is tyranny. "
2
With oil prices continuing to plunge and Euros fleeing to U.S. bonds and dollars and Republicans pushing for more tax cuts and bank deregulation, the table does seem to be set for an economic stall here in the U.S. perhaps similar to Swiss and Japanese deflation. Unless the huge pool of capital can be put to work in creating jobs that will in turn translate in consumer buying and more production, we may find ourselves back in a recession or worse. Although I'm opposed to the Keystone XL pipeline, I was hoping that President Obama would sign off on it if the Republican Congress would in turn agree to a massive infrastructure bill to repair our roads and power grid and perhaps even a national high-speed rail system to carry commercial freight and military supplies as well as passengers. Time is running short for a new expansionary policy to replace the failed supply-side, trickle-down Reaganonics before we're engulfed in the spreading black hole of deflation.
92
Such talk is senseless. The government is part of the problem and can not be expected to solve it. We need to learn to take care of ourselves and each other.
1
but Paul, Obama could have signed on the keystone and the GOP would no way have supported an infrastructure spend. that is not their way. Perhaps Obama has finally learned that tho them, negotiation is a one way street. I think the GOP wants the economy to fall off a cliff-- they they can encourage the stupid american voters to vote for their guy for president to "clean up the mess caused by Obama." That is their strategy-- that it is a lie is of no concern to them.
Just a sudden thought. Yes, endorse and build the Keystone pipeline. Then wait for it to fail. And it will fail have no doubt. When this poisonous oil pollutes the Oglala aquifer and the ensuing man-made drought ruins harvest after harvest of vital food crops....why then we build a bigger pipeline in California to replace the lost crops, or....
American economic policy makes a false equivalency: major Congressional leaders act as if increasing profit and wealth is the same as expanding prosperity and jobs. When the gap and distance between these very different objectives is revealed statistically and anecdotally, the leaders rely on a favorite canard: blame the victims, declare the fault as being theirs.
After the twin strategies of wealth and blame, the other technical aspects of the economy, especially those tied to money and banking and the effects on expansion for jobs and middle class income are ignored.
Brasil's strategy (closer to home!) of moving millions out of the ranks of its poor into the middle class, improving education, home and auto ownership is also ignored.
And despite the claims that corporations want the lowest wage costs and rock bottom production costs, Haiti (closer to home!) is ignored.
These three examples show that income by race, class, and ideology is carefully controlled by the managing coalition of America's political economy, for the same reasons Africa lacks drug manufacturers for its most common illnesses.
For much of the world and many at home, deflation will have little effect on their short or long term outlook. Not much in the inner cities, under developed rural areas, and countries with large numbers of people of color who are poor (often with wealthy leaders controlling concessions of national resources) will change. They have been stuck too long.
After the twin strategies of wealth and blame, the other technical aspects of the economy, especially those tied to money and banking and the effects on expansion for jobs and middle class income are ignored.
Brasil's strategy (closer to home!) of moving millions out of the ranks of its poor into the middle class, improving education, home and auto ownership is also ignored.
And despite the claims that corporations want the lowest wage costs and rock bottom production costs, Haiti (closer to home!) is ignored.
These three examples show that income by race, class, and ideology is carefully controlled by the managing coalition of America's political economy, for the same reasons Africa lacks drug manufacturers for its most common illnesses.
For much of the world and many at home, deflation will have little effect on their short or long term outlook. Not much in the inner cities, under developed rural areas, and countries with large numbers of people of color who are poor (often with wealthy leaders controlling concessions of national resources) will change. They have been stuck too long.
25
In the interest of looking at the effects of declining spending, we would like to cite this piece on another economist, like Dr. PK, who called interest rates correctly for 2014, and identifies where there will be a spending slow-down in the U.S.:
http://www.reuters.com/article/2015/01/13/us-investing-gundlach-oil-idUS...
We're not sure he's correct that no capital spending has been going on except in the energy area, but he certainly joins in pointing out the Fed should have no rate pressures from the economy - only from politics.
It is yet again obvious that the low tax rate environment 1%-ers and corporations have constructed for themselves cannot keep the economy functioning:
http://dealbook.nytimes.com/2015/01/06/soaring-bond-prices-may-sound-an-...
when they agitate for higher rates in an environment where the Swiss are offering negative interest rates on monies you insist on leaving with them.
Raise taxes on the uber-wealthy now (and no corporate tax holiday for profits repatriation) before the deflationary vortex grabs us and it's too late.
http://www.reuters.com/article/2015/01/13/us-investing-gundlach-oil-idUS...
We're not sure he's correct that no capital spending has been going on except in the energy area, but he certainly joins in pointing out the Fed should have no rate pressures from the economy - only from politics.
It is yet again obvious that the low tax rate environment 1%-ers and corporations have constructed for themselves cannot keep the economy functioning:
http://dealbook.nytimes.com/2015/01/06/soaring-bond-prices-may-sound-an-...
when they agitate for higher rates in an environment where the Swiss are offering negative interest rates on monies you insist on leaving with them.
Raise taxes on the uber-wealthy now (and no corporate tax holiday for profits repatriation) before the deflationary vortex grabs us and it's too late.
76
Deflationary recession is similar to an airplane stalling. It starts to fall in an uncontrolled way, though it gathers speed as it hurls to the ground, it is unlikely that the plane will come back under control before it hits the ground.
Almost all of today's problems thread back to George Bush Jr.
The source of deflation is too much supply relative to demand.
In 2001 he inhereted a recession characterized by deflationary pressure.
One problem then is that investor's can't get good returns on investments (ROI): why build new supply when there's insufficient demand for existing capacity i.e. SUPPLY SIDE SATURATION.
Rich people/investors by definition don't HAVE to work for a living, they let their money do that. Their biggest nightmare is HAVING to work for a living. So to them ROI is everything.
-So investors demand deregulation to get access to socially unconstructive investing, things like payday loans, subprime mortgages, anything to get ROI.
-When a sector does offer ROI, like a new tech which brings with it its own latent demand, investors flood into that sector creating a bubble.
This sets the stage for disaster. Face with this the Bushies nonetheless pored the coals on supply-side policies: in one decade over $12 trillion moved from demand (99%) side of society to the supply (1/10%).
This has yet to be reversed. The problem is understanding the magnitude of trillions displaced, which spreads out globaly, and the leverage the 1/10%ers have to keep it that way.
Almost all of today's problems thread back to George Bush Jr.
The source of deflation is too much supply relative to demand.
In 2001 he inhereted a recession characterized by deflationary pressure.
One problem then is that investor's can't get good returns on investments (ROI): why build new supply when there's insufficient demand for existing capacity i.e. SUPPLY SIDE SATURATION.
Rich people/investors by definition don't HAVE to work for a living, they let their money do that. Their biggest nightmare is HAVING to work for a living. So to them ROI is everything.
-So investors demand deregulation to get access to socially unconstructive investing, things like payday loans, subprime mortgages, anything to get ROI.
-When a sector does offer ROI, like a new tech which brings with it its own latent demand, investors flood into that sector creating a bubble.
This sets the stage for disaster. Face with this the Bushies nonetheless pored the coals on supply-side policies: in one decade over $12 trillion moved from demand (99%) side of society to the supply (1/10%).
This has yet to be reversed. The problem is understanding the magnitude of trillions displaced, which spreads out globaly, and the leverage the 1/10%ers have to keep it that way.
156
In essence, this is not a matter of opinion or policy, but a matter of mechanics.
9
Tim's analogy is quite a useful one -- I wish I'd thought of it ;)
In most cases, it's not difficult to recover an airplane from a stall: the way to do this is to steer the nose DOWNWARD, toward the ground. After some time, the increased airspeed allows the wings to support the plane's weight again.
The only hard part of this, is that when the plane is dropping fast, the "instinctive" reaction is to steer the nose upward -- EXACTLY the wrong thing to do in the unusual circumstances.
The "pushing the nose down" that the world's governments need to do, is borrowing and spending. The spending need not be frivolous: in the US, for example, there is a multi-trillion dollar backlog of neglected infrastructure repairs and investment. There are lots of other worthy investments, including improvement of educational outcomes. At present, the US can borrow money at very low interest rates (near zero!), so there won't be any easier time to make these necessary investments.
Some other countries can also borrow at low interest rates; others must pay more. Different countries have different investment needs. But a great many countries can do the right thing, and push the nose down in order to get flying again.
But the seemingly bird-brained austerians insist that we must pull back on the yoke, lest we fly too fast!
In most cases, it's not difficult to recover an airplane from a stall: the way to do this is to steer the nose DOWNWARD, toward the ground. After some time, the increased airspeed allows the wings to support the plane's weight again.
The only hard part of this, is that when the plane is dropping fast, the "instinctive" reaction is to steer the nose upward -- EXACTLY the wrong thing to do in the unusual circumstances.
The "pushing the nose down" that the world's governments need to do, is borrowing and spending. The spending need not be frivolous: in the US, for example, there is a multi-trillion dollar backlog of neglected infrastructure repairs and investment. There are lots of other worthy investments, including improvement of educational outcomes. At present, the US can borrow money at very low interest rates (near zero!), so there won't be any easier time to make these necessary investments.
Some other countries can also borrow at low interest rates; others must pay more. Different countries have different investment needs. But a great many countries can do the right thing, and push the nose down in order to get flying again.
But the seemingly bird-brained austerians insist that we must pull back on the yoke, lest we fly too fast!
27
Yes, thanks for the clarity on piloting planes. I was going from memory from some movie I saw as a kid.
2
Now is the time for America to reinvest in ourselves. We need both public and private money to be spent rebuilding America's infrastructure including energy, education and telecommunications. We need to build our productive capacity to be prepared for the rebound in Europe and China that should occur in the next three to four years.
That would keep our economy going in the short run and set us up to be more competitive in the long run.
That would keep our economy going in the short run and set us up to be more competitive in the long run.
236
You certainly remember Romney's comment about the 49%. I would bet that the largest number of CEOs and business owners are members in good standing of the GOP. While "work may be the curse of the drinking class", workers are the curse of the 1%> There is NO reason for them to want to create jobs, they want to eliminate jobs, either through technology, offshoring or simply by investing in paper products passed from one investor to another and watch as the price goes up or down over the course of its life. Money managing companies hold billions that they push around, and now invest in POT businesses--talk about money going up in smoke. At some point, the pot buyers will be OUT of money and the investment dudes will have reaped their rewards while the potheads declare bankruptcy because they have no jobs, no prospects and no will left to forge ahead.
Jobs are anathema to the rich. They are the propagators now of vaporware in the form of collateral debts that eventually the taxpayer will inherit, but by then, the tax collection will have died from under funding by the lackeys of the 1%.
I can't ell you how good it feels to be OLD.
Jobs are anathema to the rich. They are the propagators now of vaporware in the form of collateral debts that eventually the taxpayer will inherit, but by then, the tax collection will have died from under funding by the lackeys of the 1%.
I can't ell you how good it feels to be OLD.
4
yes, we need investment in our infrastructure but it is vital that is targeted to SUSTAINABLE investments in public transit to save the 70% of our oil and 35% of greenhouse emissions now going to Auto addiction, insulating ALL buildings so we can stay reasonably comfortable without excessive use of peak fossil fuels, walkable communities, and shared resources like public libraries, parks, schools and hospitals. No more roads, highway lanes or crazy billion dollar overpasses to improve traffic when driving is declining.
(See Doug Short's excellent analysis of the US driving decline:
http://www.advisorperspectives.com/dshort/updates/DOT-Miles-Traveled.php
We do NOT need the legions of landscape trucks hauling riding lawn mowers belching their fumes which have come to replace the local teenager cutting grass with a manual mower. We do not need idiotic leaf blowers when rakes actually do a better job with no pollution or energy waste, or electric can openers, electric paper towel dispensers or the endless cascade of throwaway consumer junk supposedly vital to the economy.
We will actually live better when we share our local communities, music, the arts, learning and artfully done crafts and goods.
Already millions of Americans are getting food stamps,, have no place to live while plutocrats gobble up luxury NYC suites, and cannot afford to drive. The discount gas station ironically always has bikes parked as the workers pumping gas cannot afford cars themselves...
(See Doug Short's excellent analysis of the US driving decline:
http://www.advisorperspectives.com/dshort/updates/DOT-Miles-Traveled.php
We do NOT need the legions of landscape trucks hauling riding lawn mowers belching their fumes which have come to replace the local teenager cutting grass with a manual mower. We do not need idiotic leaf blowers when rakes actually do a better job with no pollution or energy waste, or electric can openers, electric paper towel dispensers or the endless cascade of throwaway consumer junk supposedly vital to the economy.
We will actually live better when we share our local communities, music, the arts, learning and artfully done crafts and goods.
Already millions of Americans are getting food stamps,, have no place to live while plutocrats gobble up luxury NYC suites, and cannot afford to drive. The discount gas station ironically always has bikes parked as the workers pumping gas cannot afford cars themselves...
6
Your vision while noble, does not make is implausible.
The current suburban-driven culture we have reflects America's preferences - relative proximity to work in urban areas, but more larger personal space areas that suburbs allowed.
If you truly want less energy usage, we would need to become far more urban - more high rises and less single family homes (high rises are far more energy efficient. This will lead to less community based living, less space for arts and recreation.
While your ideals are interesting, they appear to be completely at odds with what America says it prefers.
The current suburban-driven culture we have reflects America's preferences - relative proximity to work in urban areas, but more larger personal space areas that suburbs allowed.
If you truly want less energy usage, we would need to become far more urban - more high rises and less single family homes (high rises are far more energy efficient. This will lead to less community based living, less space for arts and recreation.
While your ideals are interesting, they appear to be completely at odds with what America says it prefers.
An unreasoning fear of inflation causes actions that produce deflation. "Reduce inflation" below zero, and it is deflation.
"Fighting inflation" when we don't have inflation is fighting for deflation.
Lying about inflation, fighting it when it isn't there, has consequences. It isn't just political smoke, it can wreck our economy.
The mindless attacks on inflationary policy that isn't is leading us to the brink of the opposite disaster.
"Fighting inflation" when we don't have inflation is fighting for deflation.
Lying about inflation, fighting it when it isn't there, has consequences. It isn't just political smoke, it can wreck our economy.
The mindless attacks on inflationary policy that isn't is leading us to the brink of the opposite disaster.
388
Ah yes, one way to fight inflation is to cause deflation.
And we're back to "destroying the village in order to save it."
This is a hall mark of ideology prevailing over pragmatism and decency.
When I read the old testement, it started out with just 10 rules.
But a few books later, they started created more rules to prevent the possible situation of one accidentally breaking one of the first 10 due to proximity (I suppose).
And so it went.
One of the original rules was not to work on Saturday. Presumably this was a progressive measure to keep from driving people into the ground, but it was justified as necessary to worship God. Regardless of the reason, by the the time of the New testament, a man couldn't pick an apple from a tree if he were starving because picking apples is harvesting, harvesting is working, therefore one is violating the original rule not to work on Saturday. You can't work, but you are free to starve.
And so, the evil of deflation is so great, that we are free to destroy the economy, maybe even global civilization, so long as we avoid inflation.
How many great empires, dynasties, civilizations have fallen due to such logic? Anyway, I presume that there's room for one more.
And we're back to "destroying the village in order to save it."
This is a hall mark of ideology prevailing over pragmatism and decency.
When I read the old testement, it started out with just 10 rules.
But a few books later, they started created more rules to prevent the possible situation of one accidentally breaking one of the first 10 due to proximity (I suppose).
And so it went.
One of the original rules was not to work on Saturday. Presumably this was a progressive measure to keep from driving people into the ground, but it was justified as necessary to worship God. Regardless of the reason, by the the time of the New testament, a man couldn't pick an apple from a tree if he were starving because picking apples is harvesting, harvesting is working, therefore one is violating the original rule not to work on Saturday. You can't work, but you are free to starve.
And so, the evil of deflation is so great, that we are free to destroy the economy, maybe even global civilization, so long as we avoid inflation.
How many great empires, dynasties, civilizations have fallen due to such logic? Anyway, I presume that there's room for one more.
47
The Swiss just lost about 12% of GDP on its foreign currency reserves in the revaluation today. Should they have waited for the Euro to fall another 20%? I suspect not.
Banks and hedge funds have regularly made billions in annual profits as a result of the non-profit maximizing actions of central banks in the foreign currency markets.
Central banks try for orderly transitions in short-term currency adjustments, but it is folly to fight major currency realignments (see Russia).
I understand that markets trade on fear and greed, and when either extreme prevails people make suboptimal decisions.
The fear of the inflation vortex is largely misplaced. If Japan monetized its enormous fiscal debt I doubt people would seriously be talking about the risks of deflation there. In the meantime its budget would save itself the debt service burden with 0% yielding currency claims.
In the EU debt monetization is more complex. It has been done back-channel through long-term refinancing operations to the banks that buy their own country's zero risk-weighted sovereign debt.
But true fear of fiat currency deflation - when supply is literally unlimited and virtually costless - is completely misplaced.
It deserves a place on the mantel of human manias next to tulip bulbs and internet stocks.
The Swiss faced reality today. Nothing more and nothing less.
Banks and hedge funds have regularly made billions in annual profits as a result of the non-profit maximizing actions of central banks in the foreign currency markets.
Central banks try for orderly transitions in short-term currency adjustments, but it is folly to fight major currency realignments (see Russia).
I understand that markets trade on fear and greed, and when either extreme prevails people make suboptimal decisions.
The fear of the inflation vortex is largely misplaced. If Japan monetized its enormous fiscal debt I doubt people would seriously be talking about the risks of deflation there. In the meantime its budget would save itself the debt service burden with 0% yielding currency claims.
In the EU debt monetization is more complex. It has been done back-channel through long-term refinancing operations to the banks that buy their own country's zero risk-weighted sovereign debt.
But true fear of fiat currency deflation - when supply is literally unlimited and virtually costless - is completely misplaced.
It deserves a place on the mantel of human manias next to tulip bulbs and internet stocks.
The Swiss faced reality today. Nothing more and nothing less.
29
I agree
2
Deflation deserves to be feared. The Fed should be worried and so should the President and Congressional Republicans and Democrats.
President Obama is right to want to pump more stimulus into the economy. His proposal to make community college tuition free for those who earn it is a winner. It's the right thing to do - we want better educated citizens - and it would have a stimulative effect on the economy.
If we didn't have a dysfunctional political party first obstructing and now controlling Congress, we'd be making investments in our infrastructure and green energy, the best ways to keep our economy growing. That's what we need now and we need the Fed to not cave to the austerians. Yellin should continue to stand tall and not tighten too soon, especially until we see how things shake out if the global economy continues to slow.
President Obama is right to want to pump more stimulus into the economy. His proposal to make community college tuition free for those who earn it is a winner. It's the right thing to do - we want better educated citizens - and it would have a stimulative effect on the economy.
If we didn't have a dysfunctional political party first obstructing and now controlling Congress, we'd be making investments in our infrastructure and green energy, the best ways to keep our economy growing. That's what we need now and we need the Fed to not cave to the austerians. Yellin should continue to stand tall and not tighten too soon, especially until we see how things shake out if the global economy continues to slow.
620
"we want better educated citizens - and it would have a stimulative effect on the economy."
It might have had had i started 30 or 40 years ago. We have lost 2 generations to sloth via technological advance.
I've just finished reading Chris Kraft's book FLIGHT and wonder whether we have that kind of talent any more. He designed the X-1 at the ripe old age of 22. I see lots of 22 year olds still playing with their skateboards.
If this were 1963 and Obama said let's go to the moon by 2025 could we do it? I personally don't think so. There are too many noses glued to the iphones and ipads and cable networks . Sloth is de rigeur to be part of this generation.
I think we are fostering a kind of Oblomov Everyman these days. Everything requires too much effort. Let's all get comfy, light up a joint and have fun.
It might have had had i started 30 or 40 years ago. We have lost 2 generations to sloth via technological advance.
I've just finished reading Chris Kraft's book FLIGHT and wonder whether we have that kind of talent any more. He designed the X-1 at the ripe old age of 22. I see lots of 22 year olds still playing with their skateboards.
If this were 1963 and Obama said let's go to the moon by 2025 could we do it? I personally don't think so. There are too many noses glued to the iphones and ipads and cable networks . Sloth is de rigeur to be part of this generation.
I think we are fostering a kind of Oblomov Everyman these days. Everything requires too much effort. Let's all get comfy, light up a joint and have fun.
9
Perhaps you're confusing Yellin with Alice Rivlin?
Exactly what price 'deflation' do we have in the US? I cannot think of one thing- aside from electronic gadgets made in China- where the price has fallen.
Other than gasoline (recently), prices of everything from food to medicine to education are increasing. As a worker, I like when prices fall, it means I can buy more with my paycheck. Usually, when there is a sale at the grocery store, my wife buys more.
Given advances in technology, prices of food, education, medicine, etc should fall every single year. That is called "progress".
Other than gasoline (recently), prices of everything from food to medicine to education are increasing. As a worker, I like when prices fall, it means I can buy more with my paycheck. Usually, when there is a sale at the grocery store, my wife buys more.
Given advances in technology, prices of food, education, medicine, etc should fall every single year. That is called "progress".
3
But what is Switzerland's trade balance over the past 30 years? Both with the financial sector and partialling it out? As far as the run to secure coin(age)....the point about the tide waxing, then waning may be something we might think about, as folk "buy" dollars today... especially since the deleterious effect on exports is a killer of industries we need to offset our chronic in-the-reed trade balance... which speaks to constant down pressure on a normal "coin" value.