Krugman: Not enough inflation.

NY Slimes ^ | 4/6/2012 | Paul Krugman

[GlockThe Vote]

No, the real reason the attacks on Mr. Bernanke from the right are so destructive is that they’re an effort to bully the Fed into doing exactly the wrong thing. The attackers want the Fed to slam on the brakes when it should be stepping on the gas; they want the Fed to choke off recovery when it should be doing much more to accelerate recovery. Fundamentally, the right wants the Fed to obsess over inflation, when the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing.

[Wyatt's Torch]

Krugman is right but for the exact wrong reasons:

1) The push by conservatives to "stop printing" would be doing the exact wrong thing. Not because of job growth but because monetary velocity indicators still tell us there is not enough liquidity in the system. Look at the St. Louis Fed's chart here:

Velocity is significantly below where it was pre-crisis. M2 velocity is at an all time low. Until this starts turning upward the fed needs to keep supplying liquidity as demand for said liquidity is incredibly high.

2) The Fed needs to provide the "right" amount of liquidity to meet demand. Oversupply and not draining liquidity fast enough when demand is equalized could cause large inflation spikes which is incredibly detrimental to the economy and jobs (although not nearly as detrimental as a deflationary death spiral).

3) The Fed's ONLY goal should be price stability. The goal of full employment is far beyond the Fed's ability to manage simply through monetary policy.

[GlockThe Vote]

Krugman, Obama, Paulson, Bush, Geithner, Bernake, are all well paid liars.

[Night Hides Not]

It is not uncommon for a family of four to drop $250 shopping for two weeks worth of groceries. To Krugman and the media elite this is nothing. They also have no problem with $100 gas fill-ups. To us it’s crushing.

Silly fool (j/k)! Food and energy prices aren't included because they're so volatile, and they never seem to go down.

[Go Gordon]

Inflation is a fake solution designed to make it appear that the economy is growing while it robs thrifty people of their savings.

This is true, and I disagree with Klugman. However, I can understand the thought process of inflation being good with regard to the housing market. If inflation were to increase, the under water mortgages get turned right side up in a shorter period of time, ultimately creating "equity". Whether solving the housing/mortgage issues result in a benefit to the economy is a whole other discussion.

[RavenLooneyToon]

All good advise. I have owned a business for over a quarter of a century, prior to that I served as an operations manager for both a defense contractor, and later a fortune 500 marketing firm.
Here's my take on it:
If a company of any sort runs out of money, sales, credit, and ideas; the company goes out of business.
The only way to survive under tight circumstances is to tighten the belt. You close profit centers that are not turning a profit, you lay off as many as possible and sell assets, while looking into avenues of diversification.
If you do nothing different then the company closes, if you take action, you might be able to make a comeback.
There are many examples of comebacks such as Apple.
The US Government is bankrupt. Credit ratings are down while expenses are going up.
If you want to save the ship, then you must start throwing things overboard and quickly.
Start with layoffs.
If the FAA were to close it's doors for a full year how many flights would be canceled? None.
If the FCC were to shut down for a year how many stations would shut down? None.
If the Board of Education were to shut down, how many schools would shut down. None.
If the EPA were to shut down, how many more polar bears would die? None.
I could go through the entire bureaucracy, and save for the military, they produce absolutely nothing.
Now state level is entirely different, but as for Federal entities, they not only have zero value, they have negative value.
Shut them all down for at least one full year. Stop all taxes for one full year and the economy will take off faster than a dress on prom night.

[Go Gordon]

Inflation is a fake solution designed to make it appear that the economy is growing while it robs thrifty people of their savings.

This is true, and I disagree with Klugman. However, I can understand the thought process of inflation being good with regard to the housing market. If inflation were to increase, the under water mortgages get turned right side up in a shorter period of time, ultimately creating "equity". Whether solving the housing/mortgage issues result in a benefit to the economy is a whole other discussion.

[I am Richard Brandon]

We have plenty of inflation. It’s just not reported deliberately miss-reported. FIXED

[Da Coyote]

When I got folks as dumb as Krugman in my physics/math classes, I asked them when they were changing their major to business.

The fact that this loon got a Nobel prize in economics proves that a Nobel in anything except physics or medicine is worth about as much as either of Obama’s two fake birth certificates.

[ctdonath2]

The problem with the underwater mortgages et al is no amount of fiddling with numbers will create actual VALUE in that market (short of natural growth). You can shove value around, and force some people to eat their losses (which is probably the fastest way to fix the problem, albeit the cruelest), but not until real demand catches up with real supply will the real value of homes rise to refill the equity shortfall.

Increasing inflation just moves the market’s lack of value from homeowners to banks. The problem remains, and the consequences are merely rearranged. To wit: if I borrow $100K from you, and before repayment the dollar is devalued 90%, the $100K I give back to you amounts to $10K pre-inflation buying value - a deal you would _never_ have agreed to if you knew about the coming inflation.

(at this point I’m pretty much just thinking out loud)

Properly handled, inflation balances the value of currency units against growth of wealth & population. The goal is to keep a dollar worth “a dollar” despite population & GDP doubling, and the _appearance_ of inflation is 0%. A slightly positive inflation rate encourages people to keep that money moving, preferring to acquire goods/services rather than sit on zero-velocity “mattress savings”. Negative inflation, deflation, discourages economic activity because the currency increases in relative value by just holding onto it. Seriously positive inflation cheats lenders: as inflation rate increases above existing loan rates, lenders lose money (that includes you investing in CDs, bonds, or other fixed long-term holdings) ... and that’s what you’re proposing to do by increasing inflation to “help” mortgage borrowers - helping them by cheating the lenders by devaluing what is owed.

(blather off)

[ctdonath2]

...or the Obama’s Nobel prize.

[The Great RJ]

Krugman is advancing the old Keynesian economic argument that there is an inverse relationship between inflation and unemployment (Phillips Curve) so a “little” inflation would lower unemployment. However, this theory was proven dead wrong during the Carter administration when inflation causing stimulus was applied to stagflation...where unemployment and inflation were rising simultaneously. This produced an inflationary spiral that boosted interest rates into the double digits. I bought my first home in 1979 with a 30 mortgage rate of 11.25% and within 6 months mortgage rates were in the 18% range. Interest rates like that would be a death knell for the whole housing industry in this economy.

[rawcatslyentist]

Krugman you ignorant Fluke!

Just because you don't know history, doesn't mean we all don't!

[central_va]

So a 4 billion dollar a day deficit isn’t good enough?

[central_va]

Who has done more damage to humanity; Hitler or Keynes? Freepers I want a 3 page single space position paper by next wednesday.

[Col Freeper]

Vet the media:

[EQAndyBuzz]

WOW!!!! That is great. I see an idea coming on.

Posters of this all over the place. Every week preview one on YouTube. Quick 1 minute profiles.

Honestly, I would go McCarthy on all of these people. And when they start bitching and whining about the treatment, we just use the economy, healthcare, financial crisis, lack of jobs, union corruption and a big picture of Greece as our backdrop.

Run it all summer long. Give it a catchy name like “The Second American Revolution.”

[Gandalf_The_Gray]

Never too old to learn something, I'll bite; what is the definition of "monetary velocity"?

Regards,
GtG

[Wyatt's Torch]

In simple terms its the turnover of a dollar in the economy. The speed in which a dollar changes hands via transactions. The higher the velocity the greater number of transactions. If demand is very high for money then people hold on to the cash and velocity decreases. When the banks stop sitting on their hordes of cash and start lending at higher rates velocity should increase rapidly.

[Wyatt's Torch]

In simple terms its the turnover of a dollar in the economy. The speed in which a dollar changes hands via transactions. The higher the velocity the greater number of transactions. If demand is very high for money then people hold on to the cash and velocity decreases. When the banks stop sitting on their hordes of cash and start lending at higher rates velocity should increase rapidly.

[Col Freeper]

Thanks EAB.

I've been searching the dark alleyways and basements of the InnerToobs, and I came across some files. Here's one for example.

LOL, according to this file, it doesn't appear that the "exalted future position" that this Comrade expects from his "leaders" will be what he thinks it is going to be.

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Become familiar with Fifth Columnists in America:

Fifth Columnists: A group of people who act traitorously and subversively out of a secret sympathy with an enemy of their country. Originally refers to Franco sympathizers in Madrid during the Spanish Civil War: so called in allusion to a statement in 1936 that the insurgents had four columns marching on Madrid and a fifth column of sympathizers in the city ready to rise and betray it.

USEFUL IDIOTS: Sympathizers, Apologists, and Propagandists for the implementation of Socialism/Communism into Western Countries like the United States, who are actually held in contempt and are being cynically used by Socialist/Communist Leaders.

Running Dogs: A manipulable, servile follower who is a lackey for those who are trying to implement Socialism/Communism into Western Countries like the United States.