Kudos for Krugman from CNN com

[Zeldovich]

Why does this man make me horny (wet from behind), even though I'm a straight guy?

[semiliteratedgod]

braininess is sexy

[christo930]

This guy is an idiot! Is it a pre-requisite to win a nobel prize in economics to fail a basic economics class? He blames the banks! How about the federal reserve who is actually to blame for all of this! How about the gov insuring all bank accounts so that people don't care how the bank uses their money! He also says we need a big stimulus, what he really means is we need a big debt. He is clueless.

[Zeldovich]

I guess you assume you know how banking works, eh? What's the difference between the monetary base and the money in circulation?

[christo930]

What is this a quiz? Even if I didn't know the answer to a particular question, I could just look it up.

In any event, we don't need more debt. The system collapsed on the weight of the existing debt and now we want more? People aren't spending money because they don't have any. People are maxed out on credit card debt and mortgage debt. You cannot just keep accumulating debt, eventually it catches up with you.

[Zeldovich]

The system didn't collapse due to too much debt. That's what people completely ignorant of how the economy and finance markets work. nGDP targeting could have avoided the meltdown in the first place. Remember that the several trillions in assets (MBS, CDO, CDS. etc.) were all with respect to about 2 trillion dollars in mortgage losses. We could have eased the rate of those losses without crashing the financial system. 2 trillion in a 14 trillion dollar economy an't explain all the damage.

[mitchrix31]

You better go get the tinfoil hat and put it on

[christo930]

What are you talking about?

[RasTmaan]

you just listened to him, does it mean your IQ is less than 90? lol.

[samsontiger1]

Krugsters is a total homo. he's a fake too. Anyone who listens to him must has an IQ of 90 or less (in other words about 98% of the american idiots).

[Zeldovich]

Do you know what inflation targeting is?

[christo930]

The government mucking around with this shit is the cause of most of America's financial problems. During the one period of modern America that saw little or no inflation, we saw the best boom since the 50's. Inflation makes saving impractical and is just another form of taxation. Instead of trying to prop up housing prices we should let them fall, write off the loses and move on. Even JMK was against inflation.

[Zeldovich]

Well, some monetarists disagree. There is the argument that this whole crash would have been avoided if the increased demand for money had been met since 2006 or 07.. Target nominal GDP at 5% and you're okay. This added inflation makes debt holders take a haircut, helps the indebted, lowers real wages, and creates incentives for more spending by consumers (buy now, before prices go up to meet target). That way we may avoid recession altogether with enhanced balance sheets adn workers working

[christo930]

They usually work for the gov:) You seem to think the housing bubble problem could have been helped by inflation, but the inflation is what caused the bubble in the first place. These housing prices simply could not have happened without the fed inflating the money supply with Greenspan's low interest policies. Another problem is that it distorts the GDP since inflation is so understated.

[Zeldovich]

And you seem to think the housing bubble was enough to bring down the economy. It wasn't.  With enough liquidity, the banks could have survuved, albeit by taking a cut in their mortgage interests due to inflation. Deflation is the real demon. It puts people out of work, raises real wages and the real value of debt owed, and sinks the economy. The inflation keeps people working for less money while the economy rebalances. that's how it works. People work for less and the bad lenders lose

[christo930]

Inflation causes poverty not wealth. It keeps people from saving money, encourages debt and working people see no benefit because their salaries always lag behind the inflation. When Volker came in and stopped the inflation, we had a boom that brought the UE from 10% to 5% in a few years. Inflation is used as a secret tax imposed on the people to keep government growing without having the people realize what is happening. We should try to keep inflation at the same rate as GDP growth.

[Zeldovich]

You're confusing near-full employment situations in which savings and investment are not on the sidelines. This is diferent, because we have savings piling up in banks, 0 intrest rates to banks, and yet they're not lending. But, Targeting inflation with credibility in the market place will pick up economic activity, as employees become less expensive to hire in real terms and we can work our debt off that way. How is having millions unemployed the best way to work off our debt?

[christo930]

What about the millions of people on a fixed income? Inflation wipes them out.

Unfortunately, our economy has been propped up by consumer spending and much of that spending was credit cards. In the past, consumers could refinance their home and lower the interest on the credit cards by moving CC debt into their mortgage. Now there is no home equity and consumers are loaded down with CC debt. America is in serious trouble and the standard of living is dropping and will continue to drop for now.

[christo930]

The government needs to create an environment that will allow American businesses to compete on the global market. We need to lower taxes, get rid of all the excess regulations, get rid of the minimum wage and get America producing again. We also need to stop mucking around the world trying to play cop. 800 bases in 130 countries!! Political projects like corn ethanol and other pet projects need to go. End the War on Drugs, release consent criminals from jails... There's lots of room here.

[Zeldovich]

Inflation doesn't cause problems unless it's unexpected. Otherwise, everyone negotiates with inflationary expectations.

[christo930]

Inflation almost always causes problems. Businesses can't forecast costs, there's price volatility, people are robbed of their savings and their earnings. The only positive to inflation is the devaluing of debt.

Home prices need to fall, they are too expensive. Average home price is over 200k and with a conventional mortgage, you're talking 50k between down payment and costs.

[Zeldovich]

Many on fixed income get COLAs. Do some homework and then, "Think McFly! Think!"

The debt would more quickly be wiped out by more people keeping jobs at lower real wages while real debt decreases.

[christo930]

Not all do and inflation is always drastically understated. If you look at the actual CPI and the official gov numbers, they have been understating inflation by an average of 4 percentage points.

Nobody wants deflation, but deflation is not falling prices. Has the computer industry been in a deflationary period, think about how stupid that sounds. The 30's had serious money shortages directly because of the federal reserve.

[Zeldovich]

Again, it's only unexpected inflation that's a problem. Otherwise, everyone can negotiate on the expected inflation rate. if the Fed sets a nominal target at, say 5%, then the market knows how much the Fed will expand the money supply and under what circumstances it will contract it.

Deflation due to producing things more efficiently is fine. That's great. Deflation due to insufficient money supply is not as it leads to self-feeding lower consumption and unemployment.

[christo930]

That's an impossible task n the real world. First of all, the government isn't going to do that. They won't announce it and they certainly won't pull the plug. Next, inflation is unpredictable and doesn't show up perfectly even across all prices. Real estate prices need to fall because they were blown up in a bubble and they are unsustainable. If we raise interest to prop them up, it will push up the cost of living way too high. Suffer for 2 years and start growing again instead.

[Zeldovich]

Nah. Austrailia has done this to a degree and have avoided going into recession altogether. Look at their numbers, especially their inflation targeting.

[christo930]

TBO, I don't know much about Australia. Managing inflation in the largest economy in the world (by far) with a gov that spends multiples of what it brings in is never going to set a low inflation target and stick to it. Remember, inflation is how we got where we are. Inflation is what drove the housing bubble and the stock bubble before it (actually they were the same greenspan created credit bubble).

[Zeldovich]

christo, you misunderstand me. It's a nominal GDP target. "Nominal" means that when productivity isn't allowing the economy to reach the target, money expansion does the rest. If nominal GDP threatens to go over the target, with a relative decline in productivity, then the money supply is contracted.

You seem stuck in this ancient Austrian idea that inflation is the expansion of the money supply. It isn't. Inflation is a generalized rise in prices. And the size of Australia is irrelevant

[christo930]

Austrian economics is not ancient or outdated. Milton Freedman won a Nobel prize in the 70's. Volker raised the interest rate to over 20% and we saw the biggest boom in since the 50's while having very, very low inflation. This hand of the dog that bit you idea is going to make things even worse. Germany fears inflation because of the 2 periods of high inflation in their past and they keep it low and guess what? They are the first to get out of the recession!

[christo930]

I did forget to mention that while Volker's policy was an excellent one that led to a great expansion, there was initial pain. Inflation, otoh, gives a short period of fun, but then comes even more pain.

[Zeldovich]

Friedman was a Chicago school monetarist, not an Austrian. Volker isn't Austrian either. He favored the recent stimulus package. You should do some homework.

[christo930]

Friedman talked about Austrian economics all the time. Neither Volker nor Friedman are fans of inflation, which is what I was pointing out as well as the damage of inflation. I guess it really doesn't matter since we are going to get it anyway. It's going to make us much poorer and it may very well ruin the dollar. With countries like China and Russia calling for America to manage the dollar better, people are getting tired of it.