Sunday, December 26, 2010

Krugman Blinks, Big Time

Paul Krugman has written an entire column in today's NYT where he does not mention disinflation or deflation.  In fact, he admits for the first time that commodity prices are going through the roof:
Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months.
But according to Krugman, this has nothing to do with Fed printing, but everything to do with global demand:

What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices. And America is, for the most part, just a bystander in this story....Well, it still feels like a recession in America. But thanks to growth in developing nations, world industrial production recently passed its previous peak — and, sure enough, commodity prices are surging again.
Well Paul, the first thing I have to say to you is that this no way, no how, is deflation or disinflation. You can claim the rising prices are a result of global demand, but the point remains, it is not disinflation or deflation. In other words, what the hell have you been babbling about for the last 6 months, when commodity prices have been, as you now admit, climbing?

There is no escape hatch here, Paulie. You have been way off the market in your disinflation/deflation call, and it is only going to get worse for you in 2011, when  ALL OTHER prices start to climb.

It's difficult to say how much of the commodity price rise is because of increased global demand and how much is because of money printing, but I also have no idea how you can attribute the entire increase to global demand and rule out the Fed money printing which most assuredly has a role in increasing dollar priced demand. And what about the climbing U.S. stock market, Paulie? Is that global demand, also?

What about next year, Paulie when China goes into stagflation and their demand for commodities declines, but prices in terms of U.S. dollars continue to skyrocket (because of Bernanke printing)? What's your theory going to be then?   Face it Paulie, you are trapped. You are on record with some of the most absurd calls a Nobel Prize winner has ever made. I have them all collected and they are all coming out next year, including the ones in your desperate column today. You have some real doozies, today, including when you bring absurd conspiracy speculation into the equation:
This doesn’t necessarily mean that speculation played no role in 2007-2008. Nor should we reject the notion that speculation is playing some role in current prices; for example, who is that mystery investor who has bought up much of the world’s copper supply?
Sounds like you need to subscribe to my EPJ Daily Alert. The subscribers to the Alert know full well there is no mystery to the copper buying, there is a pretty logical explanation for what is going on there.

And Paulie, I'm not sure who you are referring to here:

One response has been a proliferation of conspiracy theories, of claims that the government is suppressing the truth about rising prices. But lately many on the right have seized on rising commodity prices as proof that they were right all along, as a sign of high overall inflation just around the corner.

You do have to wonder what these people were thinking two years ago, when raw material prices were plunging
If you have me on that list, Paulie baby, you better take me off. I wrote many negative articles about commodities, before Bernanke started to print, even as recently as November 2009:

This is all a long way of saying that I think Roubini is correct on his forecast of trouble ahead for the stock market and commodities market, he just has the reasons wrong. The downturn is coming because the money supply has stopped growing, and dead cats bounce, they don't run down the street. If anything, what Roubini is working off of are good trader instincts, not forecasts because of accurate data
So don't put me in the "always bullish camp", I wasn't. I didn't turn bullish on commodities until Bernanke started printing. And, don't say I was only bearish in 2009. Here's what I said heading into the second half of 2008, when the real problems began:
I have previously noted that over the last two months money supply has been collapsing. M2NSA has gone from double digit growth to nearly zero growth .

A review of the credit situation appears worse. According to recent Fed data, for the 13 weeks ended June 25, bank credit (securities and loans) contracted at an annual rate of 7.9%.

There has been a minor blip up since June 25 in both credit growth and M2NSA, but the growth rates remain extremely slow.

If a dramatic turnaround in these numbers doesn't happen within the next few weeks, we are going to have to warn of a possible Great Depression style downturn.
There's plenty more, but don't stick me in any perpetual bullish camp.

And what is this about "global recovery" that you snuck into your column?:
Right now, rising commodity prices are basically the result of global recovery.
Weren't you just earlier in the week on the Rachel Maddow Show calling for more stimulus.

Paulie, you are not going to be able to wiggle out of this one. You fell completely into the trap. By mid-2011, it will be clear to everyone that inflation is out of control, that unemployment will be much lower (because of Bernanke's manipulated recovery) and the economy as measured by your yahoo stuff, like GDP, will be much stronger than you or your Keynesian brothers expect.

I think you are a good data watcher, despite your clueless Keynesian theories, and I think you see what is coming, that's what today's inflation column by you is all about. It's going to be fun watching you try to slither away from all your other absurd Keynesian forecasts, in coming weeks. But I have all the absurd quotes and forecasts that you have made over the last 6 months, and I am going to blast them out, whenever you try to slither away from them.

Happy New Year!

(Thanks2Viresh Amin)


  1. Wow, I had considered doing a Mises Daily on this Krugman article, but it's literally a string of assertions. Normally he gives a (bogus) argument to justify his stance, but here he simply says a few times, "This isn't about US monetary policy." Well, that's just like, your opinion, man.

  2. I think by now we know that Krugman is a crank. I think most here have known that for years. God help anyone that actually makes financial decisions based on what he writes. I get the feeling that he would rather lead his followers to financial ruin then admit he is wrong.

  3. There's something about calling him 'Paulie' that removes some of the credibility of your arguments.