patrick.net

You are never supposed to listen to anyone’s advice without filtering through your own analytical lens. Mish and Schiff both have good points to make and I listen to them both, but never accepting at full value whatever they preach.

Bingo!

You win a gold star.

I read a lot of this in many internet arguments, when I talk about individual issues, then I talk about the people who have helped me form opinions.

Just because they were nut-jobs at an earlier time and were wrong, doesn't discount the argument now. I agree, and can really wrap my head around the arguments Krugman makes now, so I read him regularly.

Anyway, whether or not he is right or wrong (Shiff), why the fuck would people put a money person in power? It's like shooting yourself in the foot! Christ, you think people would learn . . .

Don't put bankers into power. Smart or not, a banker in power is a walking conflict of interest.

In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.

-Paul Krugman October 7, 2001

Beware listening anything to Paul Krugman says...You can search through his entire archive of writings and find that he's been consistently awful since about 1982.

<blockquote>
</blockquote><blockquote>
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.
-Paul Krugman October 7, 2001

Beware listening anything to Paul Krugman says…You can search through his entire archive of writings and find that he’s been consistently awful since about 1982.

</blockquote>
Yeah, anyways, like I was saying. . . I am not going to read all this. As I am sure it is a matter of opiniion. The man won the Nobel prize in Economics, there has to be something behind that. Of course I am not going to fall into the appeal to authority trap . . . You have to filter things based on logis and precedent.

Darn editor. . . I'm not going to fix it.

Hi OO,

"I really feel sorry for all of those who bought US treasury in the last few months, and I will feel even more sorry for them 2 years down the road. These are simpletons who actually have savings (a rarity in the US!) and they don’t deserve a government that is working against their interest.

I am not a believer of a replay of Zimbabwe or Weimar in the US. But we are heading in that direction, with a much, much better outcome. "

I follow your statements closely as you seem to have a good knowledge of global economy. I hold some Inflation protected treasuries and your above statement started to ring some alram bells to me, can you please elaborate what you mean?

thanks,
Pshawn

pshawn,

how is the return of the inflation-protected Treasuries computed? Who protects you against inflation? If I believe in the integrity and the protective power of the entity that issues that Treasury, I would have held nothing but plain vanilla US Treasury.

On a more technical note, the CPI on which the inflation protected Treasury is based will not reflect the reality in an unevenly distributed inflationary environment EVEN IF there is no data massaging at all. Let me illustrate why.

Say, current food is cheap, its assigned weight is only 10%. If we encounter serious inflation in fuel and then food, the weight we assign to them in monthly expenditure will become higher than 20%. In more extreme cases, people cut back on clothing, entertainment and other things to service food, which could push up the weight even further. So in reality, if you start to assign 30% of your monthly expense to food, then 10% growth in food price should contribute to 3% to CPI instead of 1% as weighted in the original formula. So weighting is really a moving target, and in an inflationary situation where necessities go up faster (which is what I believe will happen), the CPI will always lag the reality by quite a bit.

Hi OO,

thanks for the reply. I know that the inflation rate that I bonds is manipulated to pay the least interest.
But my question is regarding printing dollars and why do you think the outcome here will be better than, say Zimbabwe?

thanks,
Pshawn

Zimbabwe has no agricultural excess, no guns, and no technology. And their illiteracy rate is way higher than ours.

A country's worst case scenario is defined by two aspects: resources (coupled with means to defend that resource), and people. I know we bitch about America a lot, but when you look at these two fundamentals, we are not that shabby at all.

We do print, but thanks to the Wall Street, we also created a lot of USD pit that cannot be easily filled. The Fed will not be stupid enough to print all at once and drown us under the tsunami of USD. They print as it goes, depending on the de-leveraging needs. Eventually the holes will be filled, and they will need to face lots of USD coming home to roost. But we are not there yet.

got it, thanks. I was also thinking that becuase of asset deflation(especially house prices), lot of dollars are getting destroyed also, so the liquidity that Treasury causing probably will not create hyper-inflation once economy is back on track and fed stops printing more of it.

got it, thanks. I was also thinking that becuase of asset deflation(especially house prices), lot of dollars are getting destroyed also, so the liquidity that Treasury causing probably will not create hyper-inflation once economy is back on track and fed stops printing more of it.

Well, that's THE question isn't it? Will the destruction of money/credit (which I contend is the same thing as money) happen faster than the Fed can print new money? No one knows. You can try and hedge one way or the other but it's tough.

I'm thinking the next 3-5 years are deflation as this stuff continues to unwind/de-leverage. After that I think we're in for inflation as the money that's being printed now makes its way into circulation. I'm currently 70% USD, 20% stocks, and 10% commodities (oil, gold, silver). But will rebalance as things change. Best you can do is to be flexible and debt-free.

First off, it's not a Nobel. Second, Economics is probably one of the least respectful fields in existence. They all develop these complex mathematical models for simple problems which all fail horribly. Previous winners include the two morons who gave us the Long Term Capital Managment Debacle and the AIG derivitaves nightmare. In short, the prize is meaningless, and the men who win are horrible economists who develop bad models. The only thing I'll give them is that they are good at Math. Krugman has proven he's a pretty mediocre economist. In fact, he admitted that he had his money entirely in a money market account that he thought was safe. Just goes to show you that he really had no clue what was coming.

I am more intrigued with an impending issue, what will happen when CA goes bankrupt?

Did anyone live through the time when Orange County filed for bankruptcy? I would love to see all the CALPERs receiving $200K pension going belly up, but what kind of impact it will have on residents?

First off, it’s not a Nobel. Second, Economics is probably one of the least respectful fields in existence.

I thought it was a Nobel, what is it then?

As far as respect, well that's a different matter altogether. More to the point, because it is such a disputed field, you have to listen closly to various viewpoints. . .

It's not a Nobel. It is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It's an award issued by the Central Bank of Sweden. The real Nobel committee doesn't like the fact that it even exists. Ironically convenient that they would issue it to Krugman at a time when the Central Bank is looking to print tons of money. It's akin to the Federal Reserve issuing someone an award. And they awarded it to him for his work on international trade, which he hasn't published a paper on in about a decade. The award is a farce. The big guys in "macroeconomics" are the ones that construct really complicated models that have pretty much nothing to do with anything of particular importance to economics. In fact, you will notice that any Nobel prize winner pretty much has zero credibility when it comes to understanding markets and macro forecasting. That's why they stay in academia and are not working for banks or Wall St. making billions of dollars. A guy like Warren Buffett or Jim Rogers understands the way economies work 100 times more than a clown like Paul Krugman ever could. The two that recently tried, Robert C. Merton and Myron Scholes, gave us the Long Term Capital Management blow up and more recently, the insane derivatives market. These guys don't understand economics. They are kooky mathematicians playing around with models. They develop models that say you can insure 100 trillion dollars worth of obligations without any danger. They develop models that tell you that you can loan out 400k to someone making 25k a year to buy a house and still make money. They develop models that tell you that 0% interest rates and trillion dollar deficits lead the path to economic recovery. Paul Krugman is a nutjob who worships economic thoughts has been discredited over 40 years ago. He's an awful historian. He's a schill for his buddy, Ben Bernanke, who hired him at Princeton. He's also a left wing ideologue, which is apparently what makes him extremely popular with a number of people. He clearly advocated in 2001 to lower interest rates close to zero to "stimulate housing". Not too smart if you ask me... He also automatically wrote off anyone who preached protectionism in the 80s saying that the trade deficit would naturally balance itself. He claimed in the 90s that fears of outsourcing labor were greatly exaggerated. He was sounding the alarm in 1983 that inflation was coming back. The guy has been wrong on virtually everything he preaches. The only time Krugman is ever right is when he starts biting off his buddy Dean Baker. But in reality, that just makes Dean Baker right, and Paul Krugman too dumb to think for himself. Paul Krugman is good at math, that's it.

As much as I agree with theoakman's assesment of Krugman, it isn't like there are any economists who actually do seem to 'get it right' more often than any random person.

Economics, as a science, is bullshit. You can't base a science on something that is influenced more by black swan events than by any natural phenomenon. The difference between good managers of the economy and bad (and between good investors and bad) is the ability to react quickly to situations as they arise, not in the ability to formulate strategies for influencing what will happen in the future.

Economists are great at telling us why something happened. They suck at figuring out how to prevent it from happening again, and they suck even worse at giving investment advice.

I'm not saying all economists are bad. But as far as the mainstream goes, the so called "rock stars" in academia, and the material taught in nearly every college curriculum, it's a farce. Most people who have degrees in economics don't have a clue. It gets even worse when you get up to the PhD levels. They spend so much time working on their problems that they never manage to understand basic economics. The real dangerous ones are the ones who come up with models to apply throughout the economy. They try to micromanage aspects of the economy and generally create a big mess. The reality is, economists suck at telling you why something happened. They will all tell you the banking system nearly collapsed because we didn't bailout Lehman Brothers. The reality is, the banking system nearly collapsed because it was insolvent.

Your greatest economic forecasters are largely the ones who never had any exposure to mainstream economics or did and dismissed it entirely. This latest financial crisis should be grounds to completely dismiss 90% of the garbage that is taught in Universities today. Economists, by and large are clueless. And those that actually get it right and are ahead of the curve are usually ignored because some "Nobel Laureate" disagrees and writes a column in the New York Times. In 20 years, I'm hoping history doesn't treat guys like Krugman and Bernanke nicely. I'm amazed that they are held in such high regard in the first place. It's amazing to me that no one calls them out on how wrong they've been despite the fact that everything they've written or said is easily accessible.

It’s not a Nobel. It is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

That is just so fucked up. You convinced me, I will forever more think Krugman is a schill.

What a crock. The Nobel name being abused in such a manner. Of course, we have all seen it before.

And there you are, money people suck. Why the hell would you want one in power?

Many people don't realize how much damage economists do to an economy. Alan Greenspan, Ben Bernanke, the LTCM guys, Lawrence Summers, Tim Geithner, Hank Paulson...etc..These guys are extremely dangerous to not only freedom but prosperity. The TARP is probably the biggest example that comes to my mind. 30 years ago, many people who were well schooled in monetary history and monetary theory were sounding the alarm that the system of the entire world using floating fiat currencies is a giant experiment that we do not know the consequences of. Since the 70s, we've witness several currency collapses and we are now entering the 2nd bout of historical inflation on a global scale since then. For thousands of years, the cycle was inflation/deflation because most currencies were tied to gold/silver and inflation/deflation was primarily driven by leverage through the fractional reserve system. The US Federal Reserve basically managed to transform that cycle into one of constant inflation since the 1930s. In sciences, we have everything figured out on the basic level and we manage to run laboratories properly and efficiently throughout the world in every university. In economics, despite centuries of historical data, we manage to screw up economies royally. Krugman is just the most vocal of a long list of jerks who think what they do is going to benefit society. I'm not sure if he actually believes a lot of the things he writes. If you want a progressive economist to follow, I suggest you follow Dean Baker. I don't agree with all of his positions (both political and economical), but he is very good at understanding markets, and is very honest. He knows who the people are to blame and he does demand transparency. Krugman has really just turned into a propaganda machine IMO.

Just goes to show you that he really had no clue what was coming.

Well he kinda did know some of this was coming actually.
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

Just goes to show you that he really had no clue what was coming.

Well he kinda did know some of this was coming actually.

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

No he didn't. The guy from PIMCO who he quoted did. In fact, he wrote in that article "Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off". From that statement alone, he didn't realize the bubble was already underway. I posted a article in this thread the year before the article you just posted in which he advocated lowering interest rates to stimulate housing and consumer spending. You can search his entire NYT archive and you'll find that he only vaguely mentions the housing bubble in passing and whenever he did, it wasn't him recognizing it. It was his buddies Dean Baker and Robert Schiller, whom he refers to. On top of it, Krugman had no idea that the financial system would collapse, by his own admission. So, even if I gave him the benefit of the doubt about recognizing the bubble, that doesn't change the fact that he actively advocated policies to purposely create the bubble or make it worse. Like I said, whenever Paul Krugman appears to predict something, it's because he's just rehashing stuff his buddy Dean Baker said way before. That doesn't make Paul Krugman smart, it just makes him too dumb to think for himself.

No he didn't...

German Interview, undated

http://www.pkarchive.org/global/welt.html

“During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?”

July 18, 2001

http://www.pkarchive.org/economy/ML071801.html

“KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).
DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy?
KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know.
“

August 8th 2001

http://www.pkarchive.org/economy/ML082201.html

“KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It's not a happy picture.”

August 14, 2001

http://www.pkarchive.org/column/81401.html

“Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.

October 7, 2001

http://www.pkarchive.org/economy/ML071801.html
“Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package.
“

Dec 28, 2001

http://www.pkarchive.org/column/122801.html

“The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged.”