Kudos for Krugman from CNN com

CNN talks to Paul Krugman on his suggestions to track this global financial crisis.

Category:

News & Politics

Tags:

• global
• financial
• crisis

[Zeldovich]

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

[Zeldovich]

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

[semiliteratedgod]

braininess is sexy

[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.

[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]

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.

[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Austrian economics is not ancient or outdated.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!

[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]

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]

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

[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]

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.