Kudlow, Forbes Debunk Krugman's 'Third Depression' Call

It's hard to imagine an economist being provocative, but Paul Krugman, a Nobel Prize winner, has managed to do so.

In his June 28 New York Times op-ed, Krugman argued that since governments around the world aren't willing to double-down on Keynesian policies meant to stimulate the global economy, the United States and the rest of the world are facing a third depression. But on CNBC's June 28 "The Kudlow Report," host Larry Kudlow asked if Krugman's premise were true, how come none of the measures being applied, which Krugman advocates more of, have failed to have any effect on the current economy.

"Steve Forbes, I want to focus this, coming out of G-20," Kudlow said. "Paul Krugman's remarkable op-ed today in The New York Times - he says, we are already in the early stages of a depression. He calls it the third depression in U.S. history. He says that it's primarily a failure of policy. But, Steve, the so-called spending cuts or tax increases or deficit reduction hasn't happened yet. In the last two years, we've had gargantuan spending and ultra-easy money which is what Professor Krugman has been advocating the whole time. And he still thinks we're in a depression. So I need to ask you, maybe his policies are what threaten the depression."

As I posted before, we currently have 4 views on how to combat our current economic problems. Two of these views are not being considered by any major country that I know of.

1) Increase Spending, Raise Taxes (Krugman’s view)

2) Increase Spending, Cut Taxes ( George W. Bush did this in 2001 and 2002 )

3) Decrease Spending, Raise Taxes ( the austerity view currently being implemented by the Europeans).

4) Decrease Spending, Cut Taxes ( the Steve Forbes, Art Laffer, Larry Kudlow view ).

In the USA, policy #1 is now the one being implemented ( although Krugman is whining that spending increases are not enough ).

No major policy that I know of today considers #2 or #4 at all.

My view is all economies are on a collision course for disaster. China requires exports to grow, but her biggest consumer is being forced to buy more Government. Europe is and has been an economic nursing home trying to eke out gains through speculation in Eastern Europe. They fundamentally cannot create any net growth due to their overhead costs of socialism. Finally, America under Mr. Skittles, is racing with Europe to win the Nursing Home sweepstakes. The only problem is the Nursing Home will be owned and operated by incompetents from Chicago. About the only person doing well is George Soros.

Yeah. Groovy. Let BTC ratio on Euro debt fall below 1 and we’ll see quantitative easing inexorably fall upon the ash
heap of financial history. Of course, since it has failed, that really means it has worked, to the Marxist/Socialist theoretical eggheads who used to teach at our overpriced institutions of higher learning. Who are now running our economy. You see, the “right people” just weren’t in charge, so they didn’t get it right. We’ll get it right because we have no experience except for seeing every other example fail but we feel good about ourselves and it’s Geo Bush’s fault that we’re in this fix in the first place. That’s right, you heard right, this is affirmative action for white people.

http://www.zerohedge.com/article/breaking-ecb-reports-failed-sterilization-auction-demand-fixed-term-deposits-comes-06-btc

Breaking: ECB Reports Failed Sterilization Auction, Demand For Fixed Term Deposits Comes At 0.6 BTC
Submitted by Tyler Durden on 06/29/2010 07:21 -0500

European Central BankFailed Auction

A week ago, when noting the increasingly weaker results of the ECB’s Term Deposit Operation, better known as liquidity sterilization, we said, to the usual ridicule: “With another auction next week, and then many more, all dependent on the amount of debt that Spain et al place “successfully”, we expect the Bid To Cover to decline consistently, until we hit a 1 BTC and the ECB realizes its monetization program is a failure.” It turns out we were right much sooner than expected: the ECB just reported a failed sterilization operation, attracting only €31.9 billion bids for the most recent, seventh sequential €55 billion auction, in which that amount of sovereign bond purchases had to be “laundered” through the system. Only 45 banks placed bids to take down €31.86590 billion or a 0.6 Bid To Cover, compared to the 67 bidding for €71559.9 billion in the prior week, and a “safe” 1.4 BTC. Furthermore, even this failed auction required a massive surge in the rate on the auction: the weighted average allotment rate for today’s operation was 0.54%, compared to 0.31% in last week’s operation. The lowest rate was 0.25% and the highest rate accepted, or the marginal rate, was 1% — the highest allowable under the rules of the term deposit program. This also is a surge from a week ago, when the lowest rate was 0.25%, or the same, and the highest accepted rate was 0.4%, less than half of today’s high rate.

Market News summarizes the catastrophe all too well:

Today’s disappointing term deposit tender result will also raise questions about the ECB’s vow to sterilize all government bonds it purchases since there are, for now at least, about E23.13 billion worth of unsterilized bond buys still in the system.

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