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Stocks, Flows, and Pimco (Wonkish). Paul Krugman says Bill Gross is wrong to dump US Treasuries
New York Times ^ | 04/20/2011 | Paul Krugman

Posted on 04/20/2011 6:56:40 AM PDT by SeekAndFind

I’ve been getting questions about what happens when the Fed wraps up QE2 — related especially to Bill Gross’s public view that interest rates will shoot up. This is related to the question of the extent to which QE2 has kept interest rates low. So a quick exposition of my theoretical position, which also happens to be more or less standard economics.

So: I basically think of asset prices in a Tobin-type stock equilibrium framework (pdf). People make portfolio choices, allocating their wealth among bonds, stocks, etc.. Asset prices – including the famous “q” – rise and fall to match these portfolio choices to the actual asset supplies.

On this view asset purchases matter because over time they change the stocks of assets available : by buying long term federal debt, the Fed takes some of that debt off the market, and hence drives up the price of what’s left, reducing interest rates. The flow – the rate of purchases – matters only to the extent that it affects expected returns.


(Excerpt) Read more at krugman.blogs.nytimes.com ...


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: billgross; paulkrugman; pimco; ustreasuries

1 posted on 04/20/2011 6:56:44 AM PDT by SeekAndFind
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To: SeekAndFind

IOW, The Slime’s In-House Nobel Laureate does not buy the notion that rates are low only because the Fed is doing QE2.

Krugman argues that if there were really a problem with the marketability of US debt, rates would be high regardless.

So, he does not expect rates to spike when QE2 ends.


2 posted on 04/20/2011 6:58:59 AM PDT by SeekAndFind
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To: SeekAndFind

Is this the same guy who said not to buy Silver when it was 7 bucks an ounce a couple years ago?


3 posted on 04/20/2011 6:59:30 AM PDT by screaminsunshine (Shut up and eat your Beans!)
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To: SeekAndFind

When QE2 ends QE3 starts.


4 posted on 04/20/2011 7:00:29 AM PDT by screaminsunshine (Shut up and eat your Beans!)
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To: SeekAndFind

Is this guy a sccessful investor, or just an opinion factory.


5 posted on 04/20/2011 7:03:01 AM PDT by dagogo redux (A whiff of primitive spirits in the air, harbingers of an impending descent into the feral.)
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To: screaminsunshine
I tend to follow I guy who uses his money than an idiot who uses paper to write on.

Paulie when I see you put your money where your mouth is then come back.

6 posted on 04/20/2011 7:03:10 AM PDT by scooby321
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To: SeekAndFind
Krugman says Bill Gross is wrong to dump US Treasuries

If Krugmans says that, then get rid of 'em now!

7 posted on 04/20/2011 7:03:33 AM PDT by BfloGuy
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To: scooby321

Well good luck. I hope you are right...really I do.


8 posted on 04/20/2011 7:05:26 AM PDT by screaminsunshine (Shut up and eat your Beans!)
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To: dagogo redux

RE: Is this guy a sccessful investor, or just an opinion factory.

I don’t know, all I know is he won a Nobel Prize in Economics /s


9 posted on 04/20/2011 7:07:40 AM PDT by SeekAndFind
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To: screaminsunshine

RE: Is this the same guy who said not to buy Silver when it was 7 bucks an ounce a couple years ago?

I don’t know about his views on precious metals, I do know that he was bullish on ENRON just over a year before it fell.

I then learned that in 1999 Paul Krugman was paid $50,000 by Enron as a consultant on its “advisory board,” and that same year he wrote a glowing article about Enron for Fortune magazine.

Then, After Enron collapsed in 2001, Krugman wrote several columns excoriating the company.


10 posted on 04/20/2011 7:11:01 AM PDT by SeekAndFind
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To: SeekAndFind

The famed Enron advisor propping up another Ponzi scheme.


11 posted on 04/20/2011 7:13:23 AM PDT by Qbert ("The best defense against usurpatory government is an assertive citizenry" - William F. Buckley, Jr.)
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To: SeekAndFind
I got into an argument with a big lib last week over economics. He takes everything Krugman says with a big spoon.

To refute what I was saying, he said "So, do you have a Nobel Prize like Krugman?"

My reply? "Obama's got a Nobel, too. So what? My training in economics came from the late, great Dr. Erwin Graue, whose common sense brilliance included maxims such as 'there are no free lunches'."

Seriously, Dr. Graue forgot more economics than Krugman could ever hope to learn.

One of the classes I took with him had a grand total of five students. There was no place to hide, and it was brutal when one answered his question incorrectly, which for me was far too often.

He was my advisor my first two years in college, and he kept hammering at me to change my major from management to public accounting. Midway through my sophomore year, I did exactly that, and it turned out to be one of the best moves I ever made.

12 posted on 04/20/2011 7:14:52 AM PDT by Night Hides Not (If Dick Cheney = Darth Vader, then Joe Biden = Dark Helmet)
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To: SeekAndFind

Paul Krugman: the economist who understands nothing about economics. It doesn’t bother him, though. In his universe, wrong is right, so he believes he’s right no matter what the real evidence shows.


13 posted on 04/20/2011 7:25:44 AM PDT by American Quilter (DEFUND OBAMACARE.)
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To: Qbert

Paul Krugman resigned from the Enron Board of Directors in 1999. I believe his gig there paid him $50,000/year. Some would say Bernie Madoff is a genius worthy of a Nobel too.


14 posted on 04/20/2011 7:34:21 AM PDT by calico_thompson
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To: SeekAndFind

All the more reason to support the fact that Bill Gross is right.

Krugman is an ass


15 posted on 04/20/2011 7:35:39 AM PDT by CPT Clay (Pick up your weapon and follow me.)
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To: SeekAndFind

Why does this sleazy partisan Krugman not invest all of his retirement funds in long term treasuries today? What do you think are the chances? Simply because he does not truly believe that treasuries will not decline precipitously. The man has no conscience when it comes to other people’s money. He is wrong all the time about just about everything.He would disprove the old saw that even a broken clock is right twice a day.


16 posted on 04/20/2011 7:40:01 AM PDT by chuckee
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To: SeekAndFind

Now I can rest easy. I had been worried about my heavy over-weighting in precious metals and rare earths. If Krugman says Treasuries are OK it’s a lock that they are doomed.


17 posted on 04/20/2011 7:46:13 AM PDT by Timocrat (Ingnorantia non excusat)
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To: SeekAndFind
“the fact that the Fed is currently buying some large fraction of debt issuance is irrelevant; interest rates are determined by the willingness at the margin of private investors to hold the existing stock of debt”

This statement is simply stupid. Interest rates are determined by the time value of money, the risk of inflation and the risk of default. If the Treasury starts issuing debt again (and it will need to to pay for the irresponsible levels of government spending) buyers will demand higher interest rates. If those who hold existing debt wish to sell that debt, those buyers will also demand higher interest rates.

Paul Krugman has almost always been wrong. He said stock prices were going to go up at the peaks and go down at the lows. He said commodity prices were not going up. His Nobel Prize says more about the corruption of the Nobel selection process than it does of his ability.

18 posted on 04/20/2011 7:47:21 AM PDT by detective
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To: screaminsunshine
Is this the same guy who said not to buy Silver when it was 7 bucks an ounce a couple years ago?

I'm trying to find something which would verify this, so that I can forward to a Paul Krugman "fan". Can you point me in the right direction? I'm having no luck.

19 posted on 04/20/2011 8:08:38 AM PDT by Clink (Conservatives believe it when they see it. Liberals see it when they believe it.)
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To: detective

“Paul Krugman has almost always been wrong. He said stock prices were going to go up at the peaks and go down at the lows. He said commodity prices were not going up. His Nobel Prize says more about the corruption of the Nobel selection process than it does of his ability.”

Do the opposite of what Krugman, the Madoll of the Ny Slimes re shaming the American sheeple, says.


20 posted on 04/20/2011 9:01:14 AM PDT by Grampa Dave (ILLEGAL IMMIGRATION IS DESTROYING AMERICA-LOOK AT WHAT IT DID TO THE WHITE HOUSE!)
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To: Night Hides Not

“One of the classes I took with him had a grand total of five students. There was no place to hide, and it was brutal when one answered his question incorrectly, which for me was far too often.”

I have more often than not always found that I learned more from teachers who beat the crap out of me than ones who were casual and vague about stuff. Not always, of course. One doesn’t learn much from pure meanness. And I have had wonderful teachers who were terrifically friendly and more supportive in their manner.

But I have a certain respect for teachers who can walk that fine line of gently beating your head in. Maybe it’s Pavlovian on my part, seeking approval. Whatever. I think that’s one reason why I like Mark Levin so much.


21 posted on 04/20/2011 10:23:21 PM PDT by Attention Surplus Disorder (Which has more wrinkles? Helen Thomas' face or Lawrence O'Donnells' panties?)
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