Search This Blog

Saturday, August 21, 2010

Another Leftist Bondage Scheme for the Bond Gods. Krugman Speaks of the Evils of the Austerians

Abstract: Paul Krugman of the NYT attempts to pin the deficit problem on his political enemies labeling them as “austerians.” He claims, ignoring the constant clamor and howlings of Republicans over financial matters, and niftily guided by apparently viewing some curious apparition that informs him, “how suddenly Republicans lost interest in the budget deficit.” As for spending cuts and lower deficits, we learn, unexpectedly, that “investors aren’t worried about deficitsand while he rattles some gourds in the general direction of the elusive bond vigilantes threatening, parroting his wording on mere assertions, that “they would pull the plug on spendthrift governments.” Krugman conveniently forgets his own interminable clarion calls for more government spending and the need to ignore these massive deficits that are crushing our economy. His criticism of George Bush’s 413 billion dollar deficit, a pittance in this current arena, is forgotten and he can not find criticism for the Obama massive deficits and the 13.4 trillion dollar National Debt. He is thusly exposed as a crusty political opportunist in the guise of an economist who boils up half truths and injects inversions of this own remarks in his ghoulish stew for general publication and the narrow education of his leftist adherents while the economy sickens from a massive debt load that will probably lead to defaults.

The political expertise of the Walter Duranty Papers[1][2]—aka [the near-bankrupt] New York Timesis flourishly[3] trumpeted with grand prose and lofty song using the finest attributes of propaganda found in any written form excepting Pravda or the Huffington Post—i.e. The HuffyPuffer.[4][5][6] Given that our aggregate tax rates for the successful are currently shy of 45% and could be as high as 70% in places where Paul Krugman was anointed with the Nobel Prize in Economics, we can always expect some new and novel pleas for more loot to be extracted from the dreaded capitalists. Anybody who has wealth above some arbitrarily constructed median has gotten that unfairly. That is the proof.

I, having read more than 200 of Krugman’s krugmanical screeds, have lost confidence in my ability to find a single instance where our Grand Economist has suggested smaller government, tax cuts or some reduction in government spending excepting the military. And, this is not so astonishing because the left have nothing other than to plunder the wealth of those who can manage to excel in the absence of the critical guiding hand that Marxism and socialism supposedly offer. So, today, we inspect this curious assemblage of emotions and submerged Marxian logic so we can learn what the lever pullers in policy tanks and government wonks have been mandated today as their current instructions.

[I offer extensive quotes in this blog so that the reader can view the exact language and can be confident that nothing was taken out of context or that nobody was misquoted. The easiest way to take in the salient points is to read the emphatic points in the quotes and then peruse my comments or terms that run counter to the left. Comments on my comments are always welcome:]

The opening:

“As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.”--Appeasing the Bond Gods By Paul Krugman Op-Ed Columnist Published: August 19, 2010 .[Emphasis is mine in all quotes.]

He might be struggling with Adam Smith’s Invisible Hand here but this is vague so let it rest as an essential element of sophistry that attracts the attention of the servile.

A lament follows setting the stage for more abuse for those who cannot see the socialist vision:

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.”--Appeasing the Bond Gods By Paul Krugman

This is pedestrian-grade fluff even for Krugman. Business will not hire because they are stuck in a fierce anti-business arena with a flurry of new taxes and fees to contend with. The uncertainty of their ability to make profits in the Obama Era forces them to sit on the sidelines with cash until they see some hope of growth in the future. That may take a decade or two. Asia is a better option in many ways,

Now, the demon is exposed for abuse:

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.”--Appeasing the Bond Gods By Paul Krugman

This is written in the future past perfect tense, a common way to reconstruct time lines and make a solid case ignoring the facts. The salient fact here is that the bond vigilantes have, as yet, decided to sell their holdings en masse. The threat here is that if the bond market is depressed in terms of bond prices then the interest rates would necessarily go sky high. Our Esteemed Economist is pandering around to actually head off a future episode like this in the likely case that Moodys, S&P or Fitch would downgrade our worthless AAA credit rating such that the interest on the debt, now $200 bln per year, would double or triple. This is what happens in free markets, the hobgoblin of the left.

He rants on:

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.”--Appeasing the Bond Gods By Paul Krugman

Here is a lie ensnarled around some futuristic threat. Business needs full employment to fufil their highest profit projections. They welcome new employees if they can support new products and higher efficiencies. Capitalism is based on growth. The idea of a stimulus is old and Bush1 attempted one by mailing out checks of $$500 to all of us , amounting to almost exactly 1% of the GDP and it did nothing to boost the economy and didn’t even appear in the money supply M2. In better times, this would have multiplied by 10 to give the economy a 10% boost. The slapdash demonizing of the ‘investors’—hated capitalists as we know—is part of the art of the Walter Duranty Papers. So, this is just an old piece of stale chum from the Key Chum Chucker of the ‘economic’ left. In fencing this would be equivalent to having your cod bag slip onto the mat during a lunge.

A lie is fomented for presentation:

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.”--Appeasing the Bond Gods By Paul Krugman

This awkward statement seems to indicate that the ‘investors’ are a small nefarious bunch huddled in some small room devising new ways to gleefully torment the poor for fun and profit when the bond market is actually enormous [57 trillion in 2007 alone and now much higher[7]] and includes buyers and sellers of sovereign debt around the globe. The derivatives market is 10X this size.[8] At this time the bond markets are free markets so governments can do little to change the ebb and flow of the international market other than to buy or sell their own bonds. We don’t know how much the Fed has bought of our bonds, but most of it is probably off-balance sheet[9] and it runs in the trillions I suspect. What Krugman fears is that the Fed will lose control of the interest rates.[10] His fears are justified.

The conundrum solved instantly:

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.”--Appeasing the Bond Gods By Paul Krugman

There is no thinking here. There is no bubble in the bond market because there is no unreasonable demand—a criterion for such an animal. Krugman apparently failed to reads about the corporate junk bond market last year and how well it is doing. Interest rates are falling because we are in a debt-driven deflationary spiral where the crash in real estate prices initiated by the phony the CRA [Community Reinvestment Act][11][12] that resulted in AAA rated 2007 subprime mortgage bundles descending to only 28 cents on the dollar.[13] Lower rated bundles are less than 5 cents on the dollar. Good bye.[14] The Fed wants to flood the economy with liquidity so as to avert a larger case of deflation of the sort that ruined Japan’s economy for the last 20 years and probably for the next 20 years. That works until inflation starts to boil.

Krugman bungles the meaning of Bill Gross’s statement:

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”--Appeasing the Bond Gods By Paul Krugman

What is the choice? This is so snarled up it is nearly impossible to unwind this sticky Gordian Knot. The Obama stimuli are not working. Period. The massive and futile spending will coarsen our money and cast it into the trash bin as worthless paper if we let this continue.

We are in deflation by these metrics:

Following the stock market crash of 1929 and the ensuing Great Depression, Fisher developed a theory called debt-deflation. According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs:”

a. Debt liquidation and distress selling.

b. Contraction of the money supply as bank loans are paid off.

c. A fall in the level of asset prices. [Housing!]

d. A still greater fall in the net worth of businesses, precipitating bankruptcies.

e. A fall in profits.

f. A reduction in output, in trade and in employment.

g. Pessimism and loss of confidence.

h. Hoarding of money. [buying gold]

j. A fall in nominal interest rates and a rise in deflation adjusted interest rates[15]

I cannot find an exception to any of these 9 metrics in the US case. They are ALL present in one form or another. We are in deflation and the Fed wants to keep interest rates near zero to reflate the economy.

The Hypocrisy Bell is rung again!

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites. Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?”--Appeasing the Bond Gods By Paul Krugman

This is a mess. The Rs insist on some budgetary restraint and all on this massive spending and mostly on the part where government is bloated and tends to resemble some metastatic tumor. Government jobs are inefficient and at cross purposes to a good economy. Next, we recall some of his regurgitations from the past on deficits:

Here, in words of only a syllable or two is the stated case by Paul Krugman from his own op-ed:

The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.”[16]-- March of the Peacocks By Paul Krugman Published: January 28, 2010 [Emphasis is mine in all quotes.]

In other words: Spend More! The Republicans have never lost interest in budget deficits. They howl about the debt that is mounting up—a matter that Krugman doesn’t mention other than to say that we can ‘we need more of that deficit spending.” That is one of their central criticisms of the far left as they waste money attempting to grow government ever bigger and bigger. There is no ‘cost’ to tax cuts—that is a slimy lie by the left that only highlights their eternal quest for higher and higher taxes. Krugman has a perfect record when it comes to showing us how we can escape the looming $14 trillion dollar debt we are mired in. He says nothing.

Here is how Krugman thinks deficits are too big when Republicans are in office and 14 trillion is now not so high since Obama is in office:

Krugman, in a November 2004 interview, criticized the "enormous" Bush deficit. "We have a world-class budget deficit," he said, "not just as in absolute terms, of course -- it's the biggest budget deficit in the history of the world -- but it's a budget deficit that, as a share of GDP, is right up there."

The numbers? The deficit in fiscal year 2004 -- $413 billion, 3.5 percent of the gross domestic product.”--[17] Krugman: Bush's Deficit Bad, Obama's Deficit Good By Larry Elder [Emphasis is mine in all quotes.]

Krugman is now designated, contrasting his bold statement above, as a deficit denier.[18][19] He hypocritically argues against the very process he wildly endorses under any economic conditions. He wants Republicans to take the blame for not spending enough and then the blame for spending too much if the economy sinks in inflation.

Notice how PK clandestinely turns the deficit spending problems against the opposition party although he is probably the biggest exponent of government spending any where , any time and especially when some problem arises, such as the depression we are in, but obliquely blames Republicans who warn all of us of potential defaults and a Greek Economy if we keep doing this.

The Krugman view to debt and how to grow out of this debt:

The rabid left point to the percentage decline in federal taxes as a fraction of the new higher GDP as ‘proof’ that there was a ‘cost’ to the Regan Era. Reagan doubled revenues and there was some ‘cost’?? Krugman rejects the Laffer Curve and gives his own nostrums of how the projected 9 trillion dollar deficit envisioned by Obama will fit into the growth[20]:

What you have to bear in mind is that the economy — and hence the federal tax base — is enormous, too. Right now GDP is around $14 trillion. If economic growth averages 2.5% a year, which has been the norm, and inflation is 2% a year, which is the target (and which the bond market seems to believe), GDP will be around $22 trillion a decade from now. So we’re talking about adding debt that’s equal to around 40% of GDP.”[21]--How big is $9 trillion? By Paul Krugman The Conscience of a Liberal, August 23, 2009, 5:54 PM

Has Krugman noticed the drop in GDP? We are nearing zero growth, a place where the debts will pile up and sink us in terminal debt hence default. Note that there is no constraint on the deficit here and no intention to retire any of the debt. There are no plans to cut spending and we must presume that the debt and deficits will rise and be monetized as more debt. The only outlet for this is default. [22][23][24][25][26]

As was predicted before I read this, the piece is full of emotion, bluffs, oblique references to tax hikes, bigger government and more spending and more debt. We can derive no useful information from this piece.

That is classic Krugman.



[2] In honor of that celebrated Communist stooge and liar and winner of the Pulitzer Prize for the NYT. The color RED is used in my essays in honor of Walter Duranty, a saint, if there could be one, in the Marxist Archives of Honor.

He said that these people had to be "liquidated or melted in the hot fire of exile and labor into the proletarian mass". Duranty claimed that the Siberian labor camps were a means of giving individuals a chance to rejoin Soviet society but also said that for those who could not accept the system, "the final fate of such enemies is death." Duranty, though describing the system as cruel, says he has "no brief for or against it, nor any purpose save to try to tell the truth". He ends the article with the claim that the brutal collectivization campaign which led to the famine was motivated by the "hope or promise of a subsequent raising up" of Asian-minded masses in the Soviet Union which only history could judge.”

[3] A word used in the descripton of flora and other unusual domains. I use this as an adverb.

[8] The Preposterous Notion of ‘Fixing’ the Derivatives Market and Other Follies.

[10] The Fed Thinks of Ways to Claw Back Some of the Stimulus Money: This Will be A Disaster as Congress Will Continue to Spend and Spend.

[11]Bear Stearns made the first public securitization of Community Reinvestment Act (CRA) loans started in 1997.[6] Editorialists in some American newspapers[7][8] and US Congressman Ron Paul[9] say the CRA loans were lent to otherwise un-credit-worthy consumers in the name of ending discrimination, although an analysis of actual lending patterns does not generally support this conclusion.[10][11][12]

On June 22, 2007, Bear Stearns pledged a collateralized loan of up to $3.2 billion to "bail out" one of its funds, the Bear Stearns High-Grade Structured Credit Fund, while negotiating with other banks to loan money against collateral to another fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund.[13] The funds were invested in thinly traded collateralized debt obligations (CDOs) found to be worth less than their mark-to-market value. Merrill Lynch seized $850 million worth of the underlying collateral but only was able to auction $100 million of them. The incident sparked concern of contagion as Bear Stearns might be forced to liquidate its CDOs, prompting a mark-down of similar assets in other portfolios.[14][15] Richard A. Marin, a senior executive at Bear Stearns Asset Management responsible for the two hedge funds, was replaced on June 29 by Jeffrey B. Lane, a former Vice Chairman of rival investment bank, Lehman Brothers.[16]

During the week of July 16, 2007, Bear Stearns disclosed that the two subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages.


Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.)

[14] The Fed Thinks of Ways to Claw Back Some of the Stimulus Money: This Will be A Disaster as Congress Will Continue to Spend and Spend.

[16] March of the Peacocks By Paul Krugman Published: January 28, 2010 [Emphasis is mine in all quotes.]

[18] The Dark Side Of Stimulus By Thomas Cooley, 06.09.10, 06:00 AM EDT

“Americans are getting increasingly anxious--and for good reason. There are deficit deniers out there, like Paul Krugman, who think we can and should ignore deficits for a long time to come because we can continue to borrow at such low interest rates. This is the same behavior for which they excoriate households who accumulated too much mortgage and credit card debt. They also blasted Alan Greenspan and Ben Bernanke for enabling this irresponsible behavior by keeping interest rates too low for too long. But by all means let the Government borrow and spend at our current low interest rates to keep this economic recovery alive.”

[19] We’re told that we can’t afford to help the unemployed — that we must get budget deficits down immediately or the “bond vigilantes” will send U.S. borrowing costs sky-high. Some of us have tried to point out that those bond vigilantes are, as far as anyone can tell, figments of the deficit hawks’ imagination — far from fleeing U.S. debt, investors have been buying it eagerly, driving interest rates to historic lows. But the fearmongers are unmoved: fighting deficits, they insist, must take priority over everything else — everything else, that is, except tax cuts for the rich, which must be extended, no matter how much red ink they create. --Defining Prosperity Down By Op-Ed Columnist Paul Krugman Defining Prosperity Down By Op-Ed Columnist Paul Krugman

Published: August 1, 2010

[20] Maximizing Both Tax Revenues and Economic Growth: The Folly of Government and the Generation of Phony Numbers and Class Warfare

[21] How big is $9 trillion? By Paul Krugman The Conscience of a Liberal, August 23, 2009, 5:54 PM

[23] Inefficiency in California, Greece and Other Places and the Socialist Disease of Parasitism: They will NOT stop spending and WILL default.,_greece_and_other_places_and_the_socialist_disease_of_parasitism_they_will_not_stop_spending_and_will_default.thtml

[25] The Coming Age of Debt Defaults: The US May have to Lead the Way and Default on All Debts. We Must Learn New Ways to Live and Survive.