Paul Krugman

[winston]

Mission Not Accomplished By PAUL KRUGMAN

Stocks are up. Ben Bernanke says that the recession is over. And I sense a growing willingness among movers and shakers to declare “Mission Accomplished” when it comes to fighting the slump. It’s time, I keep hearing, to shift our focus from economic stimulus to the budget deficit.

Look, I know more stimulus is a hard sell politically. But it’s urgently needed. The question shouldn’t be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no.

http://www.nytimes.com/2009/10/02/opini ... ef=opinion

[kennynah]

at the end...who doesn't wana free handouts... of cos, the corporations will continue to call for mor stimulus packages... their congress/senate should make the decision if enough is enough...

[winston]

The madness of the monetary hawks (wonkish)

I’ve been writing about the worrying signs of hawkishness at the Fed — quite a few Fed presidents seem to be itching to tighten monetary policy, even though the economy remains deeply depressed.

But just how far are we from the point at which monetary policy should start tightening?

http://krugman.blogs.nytimes.com/2009/1 ... s-wonkish/

[winston]

Krugman Is Clearly Delusional

The dollar is falling because of reckless economic policies like those Krugman advocates. Yet he actually thinks it’s falling because of confidence? It’s the exact opposite. Foreign banks are dumping dollars because they have no confidence in us. They’re switching to Euros, gold, and other currencies. New foreign reserves were 63% dollars in 1999. Today that number has fallen to 37% (see bottom).

We are losing our status as the world’s reserve, and it is most certainly not a good thing. Having the dollar as the world’s reserve brings extraordinary benefits. And we’re giving them all up, just to save bankers butts’ and attempt to stimulate our way to prosperity.

http://www.bearishnews.com/post/2402

[winston]

The Chinese Disconnect

Senior monetary officials usually talk in code. So when Ben Bernanke, the Federal Reserve chairman, spoke recently about Asia, international imbalances and the financial crisis, he didn’t specifically criticize China’s outrageous currency policy.

But he didn’t have to: everyone got the subtext. China’s bad behavior is posing a growing threat to the rest of the world economy. The only question now is what the world — and, in particular, the United States — will do about it.

Some background: The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market — a policy made possible by restrictions on the ability of private investors to move their money either into or out of the country.

There’s nothing necessarily wrong with such a policy, especially in a still poor country whose financial system might all too easily be destabilized by volatile flows of hot money. In fact, the system served China well during the Asian financial crisis of the late 1990s. The crucial question, however, is whether the target value of the yuan is reasonable.

Until around 2001, you could argue that it was: China’s overall trade position wasn’t too far out of balance. From then onward, however, the policy of keeping the yuan-dollar rate fixed came to look increasingly bizarre. First of all, the dollar slid in value, especially against the euro, so that by keeping the yuan/dollar rate fixed, Chinese officials were, in effect, devaluing their currency against everyone else’s. Meanwhile, productivity in China’s export industries soared; combined with the de facto devaluation, this made Chinese goods extremely cheap on world markets.

The result was a huge Chinese trade surplus. If supply and demand had been allowed to prevail, the value of China’s currency would have risen sharply. But Chinese authorities didn’t let it rise. They kept it down by selling vast quantities of the currency, acquiring in return an enormous hoard of foreign assets, mostly in dollars, currently worth about $2.1 trillion.

Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now.

Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere.

But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead.

And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere. The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth.

So what are we going to do?

U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

In fact, some countries, most notably Switzerland, have been trying to support their economies by selling their own currencies on the foreign exchange market. The United States, mainly for diplomatic reasons, can’t do this; but if the Chinese decide to do it on our behalf, we should send them a thank-you note.

The point is that with the world economy still in a precarious state, beggar-thy-neighbor policies by major players can’t be tolerated. Something must be done about China’s currency.

http://www.nytimes.com/2009/10/23/opini ... ef=opinion

[winston]

Krugman Sees The U.S. Beginning It’s ‘Third Depression’

Usually ‘cheery’ Paul Krugman threw out one of his latest bombs by declaring the U.S. is currently beginning it’s “Third Depression”. Want a better start to the week, don’t keep reading.

In Krugman’s op-ed piece, he writes, “Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.”

“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

“And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”

Krugman goes on to say, “It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.”

And if that wasn’t enough for a Monday morning, Krugman believes that ‘tens of millions’ will pay the price, and some of those out of work, might very well never work again.

So how about that 11 hour match at Wimbledon?

http://www.thetradingreport.com/2010/06 ... epression/

[LenaHuat]

Hi Winston
Thanks a million for this update. It was reproduced in 2day's NYT. Krugman sounds despondent

[millionairemind]

Hi Winston
Thanks a million for this update. It was reproduced in 2day's NYT. Krugman sounds despondent

Paul has been yapping away since this Financial crisis started... but apparently nobody wants to listen to him.. he must feel very lonely...

[LenaHuat]

Actually, he gets a number of speaking engagements in the Far East but these are not reported in the english media. I don't see how he and Lawrence Summers can gel in the same team. But I share his despair with the US economy.

[winston]

PAUL KRUGMAN: WE NEED $8-$10 TRILLION IN QE by TPC

Paul Krugman thinks we need more QE. Not just a little bit more. About 8-10X more than current projections! Richard Koo’s head must be spinning. No, no, we haven’t failed, it’s just that we haven’t tried hard enough!

Krugman’s idea is the equivalent of a shopkeeper who thinks he can scream about the loads of new apples he is putting on the shelves while creating a stir in the marketplace that will ultimately result in higher sales. It won’t work in the long-run.

http://pragcap.com/krugman-8-10t-qe