Wow, Paul Krugman showing why he got that Nobel Prize in Economics

[Rasputin_Vol]

I've officially seen it all. We are doomed. If we have people like Larry Summers and Paul Krugman leading the philosophical charge for our economy, we will crash and burn.

The Conscience of a Liberal - Secular Stagnation, Coalmines, Bubbles, and Larry Summers

And as he (Larry Summers) also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.

This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.

An economy that needs bubbles?

Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.

Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.

By the way, in a Samuelson consumption-loan model, the natural rate of interest equals the rate of population growth. Reality is a lot more complicated than that, but I don’t think it’s foolish to guess that the decline in population growth has reduced the natural real rate of interest by something like an equal amount (and to note that Japan’s shrinking working-age population is probably a major factor in its secular stagnation.)

Sidenote: Too me, this is just evidence of the generational Ponzi scheme that has finally run its course in Japan and the US/Western society. As long as you have a growing population and more people feeding into the system than taking from it, then the scheme will work.

Of course, the underlying problem in all of this is simply that real interest rates are too high. But, you say, they’re negative – zero nominal rates minus at least some expected inflation. To which the answer is, so? If the market wants a strongly negative real interest rate, we’ll have persistent problems until we find a way to deliver such a rate.

One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.

Negative interest rate = You are paying the banks to keep your money

 

[n_huffhines]

The entire point of the federal reserve was to calm things down and limit the ups and downs in the economy (though they fail entirely, IMO). Now he is saying we want bubbles?

 

[TheDeeble]

The entire point of the federal reserve was to calm things down and limit the ups and downs in the economy (though they fail entirely, IMO). Now he is saying we want bubbles?

It sounds to me like they're trying to cover for things being so messed up.

No is actually yes. Bad is really good now.

 

[FLVOL_79]

A healthy economy has people spending all of their disposable income and everyone going balls deep into credit debt. A bad economy would see people not spending money but saving. It's a catch 22..save money or spend it..you hear everyone say save for retirement but then you hear everyone say we need a good economy so consumer spending has to go up.

If you are lucky you can do both but that depends on either your income or frugality.


Also allowing the poorest of poor to keep immigrating to the USA does nothing but hurt the economy. We should adopt some European countries standards on immigration (assign education requirements).

 

[volinbham]

How can he claim the "market wants negative interest rates" so we should give in to the market then claim that government should be driving the market via spending. Why worry about what the market wants if you are determined to shape the market?

 

[FLVOL69]

A healthy economy has people spending all of their disposable income and everyone going balls deep into credit debt. A bad economy would see people not spending money but saving. It's a catch 22..save money or spend it..you hear everyone say save for retirement but then you hear everyone say we need a good economy so consumer spending has to go up.

If you are lucky you can do both but that depends on either your income or frugality.


Also allowing the poorest of poor to keep immigrating to the USA does nothing but hurt the economy. We should adopt some European countries standards on immigration (assign education requirements).

Only problem with that is we would have to deport at least 47% of the country.

 

[Velo Vol]

It's not just individual saving/not spending, it's corporations sitting on cash.

 

[hog88]

It's not just individual saving/not spending, it's corporations sitting on cash.

This is true. Way too much uncertainty generated by the government with Obamacare and other proposed regulations for much investment and hiring to go on.

 

[BigPapaVol]

It's not just individual saving/not spending, it's corporations sitting on cash.

I don't get this?

 

[FLVOL69]

I don't get this?

You've never watched hoarders ? Lol

 

[tumscalcium]

Was this the same panel that awarded Obama the Peace Prize?

 

[Velo Vol]

Sidenote: Too me, this is just evidence of the generational Ponzi scheme that has finally run its course in Japan and the US/Western society. As long as you have a growing population and more people feeding into the system than taking from it, then the scheme will work.

What's the alternative?

And until the last few decades, populations in major countries would grow, not contract.

 

[Rasputin_Vol]

What's the alternative?

Admit that we have been running this country on a Ponzi scheme and then wipe the slate clean.

Gotta break a few eggs to make an omelette.

 

[Velo Vol]

Interesting point here about consumer spending, which may partially explain why spending during the bubble didn't result in that much more stuff being made.

Some numbers to make these points: at the end of 1978, consumption was 61.5% of GDP; in the second quarter of 2008, it had risen to 70.3%, or 8.8 points. Well over half that increase, 5.0 points, came from spending on medical care. The share of GDP devoted to spending on goods actually fell by 4.7 points over that 30-year period.

The pattern is preserved if you start the clock in 1997, just as the stock and housing manias were taking off. Medical spending accounted for almost a third of that rise between 1997 and 2008. Energy accounted for another third. Spending on goods accounted for just 3% of the rise, or 0.1 point. In other words, the familiar story that Americans went hogwild buying all kinds of stuff is wrong.

 

[Rasputin_Vol]

Another thing that is affected by our demographics is the fact that in the past, consumption was driven by housing. Well, with the aging baby boomers, they will eventually have to leave out of these homes that they've had and downsize or due to health reasons, be forced into their children's homes or assisted living centers for care. You will gradually see an increase of homes hitting the market (probably already started) where you have old people having to downsize or get rid of homes because they can't afford the costs of nursing homes/assisted living. Often times, the state takes the home and uses it for collateral. So on top of the inventory of homes in such areas as South Florida, Las Vegas, California, etc from the housing boom/bust, you will also have homes coming on the market due to attrition. And these homes don't have enough young people (young families) in the hopper to consume the inventory and you are not going to have much consumption as a result of that. I could also see home prices being driven down even further as a result.

It is going to be really interesting to see a deflationary dollar on homes and domestic goods, but a weakened dollar causing imports to cost more (mainly oil once the dollar is gradually not used as the only currency to trade for barrels of oil).

 

[Rasputin_Vol]

It's coming...

In The Future, You May Have To Pay The Bank To Hold Your Money - Business Insider

 

[Rasputin_Vol]

US bank customers to pay for deposits if ‘easy money’ fades away

 

[Vol8188]

The most interesting thing to me, is that over the long haul people saving their money would be a good thing. It seems like we are just afraid to endure the decade long recession that would come with it.

Same thing for our country. If we actually cut spending and paid off our debts, over the long term it would only benefit us. But it would be political suicide to try. The stock market would hit all time lows, and you would be ran out of office.

It would also create major deflation, and improve the vale of our dollar. But the only way to do this is to get away from a debt based economy.

 

[Rasputin_Vol]

The most interesting thing to me, is that over the long haul people saving their money would be a good thing. It seems like we are just afraid to endure the decade long recession that would come with it.

Same thing for our country. If we actually cut spending and paid off our debts, over the long term it would only benefit us. But it would be political suicide to try. The stock market would hit all time lows, and you would be ran out of office.

It would also create major deflation, and improve the vale of our dollar. But the only way to do this is to get away from a debt based economy.

I think you are missing the message I'm trying to make. The banks rob us coming and going. This has nothing to do with getting the economy back or what is in the best interest of the people. They gambled and lost in 2008 and were bailed out by the taxpayers because they were too big to fail. They rob us blind with bank fees and the central banks give them money at 0% and they loan it back to the people with a vig on top. Then, the Fed borrows until infinity to print more money, which lessons the value of the money we already have in the banks... plus we get straddled with the interest of them borrowing. Now, we get to this point where there is now serious consideration of these guys charging people for bank deposits. This is galloping tyranny with the banks and our govt in cahoots. Anybody that laughed at Cypriots getting bent over and robbed haven't seen the main event. In 2008 we had the bailouts. The next time around, we will have the bail ins. Any digital or paper assets we have will be on the sacrificial altar. And nobody seems to report this and the American people seem not to know or care because we are being distracted by the DJIA @ 16000 that is driven by company "profits", not actually increased consumption or business activity. Unemployment is still stagnant and those that are working are feeling wage stagnation. So how are companies able to drive the markets up so high right now? Because they are manipulating the paper markets.

 

[Velo Vol]

The most interesting thing to me, is that over the long haul people saving their money would be a good thing. It seems like we are just afraid to endure the decade long recession that would come with it.

Once enough places go out of business, you can hardly flip a switch and restart the economy where you left off.

 

[Vol8188]

Once enough places go out of business, you can hardly flip a switch and restart the economy where you left off.

Things would recover. It would take awhile, but it would happen. And our economy would be stronger.

 

[Vol8188]

I think you are missing the message I'm trying to make. The banks rob us coming and going. This has nothing to do with getting the economy back or what is in the best interest of the people. They gambled and lost in 2008 and were bailed out by the taxpayers because they were too big to fail. They rob us blind with bank fees and the central banks give them money at 0% and they loan it back to the people with a vig on top. Then, the Fed borrows until infinity to print more money, which lessons the value of the money we already have in the banks... plus we get straddled with the interest of them borrowing. Now, we get to this point where there is now serious consideration of these guys charging people for bank deposits. This is galloping tyranny with the banks and our govt in cahoots. Anybody that laughed at Cypriots getting bent over and robbed haven't seen the main event. In 2008 we had the bailouts. The next time around, we will have the bail ins. Any digital or paper assets we have will be on the sacrificial altar. And nobody seems to report this and the American people seem not to know or care because we are being distracted by the DJIA @ 16000 that is driven by company "profits", not actually increased consumption or business activity. Unemployment is still stagnant and those that are working are feeling wage stagnation. So how are companies able to drive the markets up so high right now? Because they are manipulating the paper markets.

Because inflation in the short term, is beneficial to their debt based economy. So manipulating paper markets works now.

 

[Rasputin_Vol]

The first time I've heard anyone explain what our fiat currency is backed with...

[youtube]http://www.youtube.com/watch?v=2T2Kqn5MmEI[/youtube]

 

[Orange_Crush]

The entire point of the federal reserve was to calm things down and limit the ups and downs in the economy (though they fail entirely, IMO). Now he is saying we want bubbles?

They are failing miserably because Nixon took us off of the gold standard and created a world fiat currency.

 

[Orange_Crush]

A healthy economy has people spending all of their disposable income and everyone going balls deep into credit debt. A bad economy would see people not spending money but saving. It's a catch 22..save money or spend it..you hear everyone say save for retirement but then you hear everyone say we need a good economy so consumer spending has to go up.

If you are lucky you can do both but that depends on either your income or frugality.


Also allowing the poorest of poor to keep immigrating to the USA does nothing but hurt the economy. We should adopt some European countries standards on immigration (assign education requirements).

It's interesting that the liberal left decry that the 1% has so much money. It's interesting that they say that debt is good, so keep doing it. And it's interesting that the top 1% got all of that money, primarily as creditors.