Wednesday, May 4, 2011

Sitting Around Waiting for High Praise from Paul Krugman

Paul Krugman posts to a chart showing the gross government debt as a percent of GDP, for the U.K. and Spain. He correctly notes that Spain has a current debt crisis, while the U.K does not.

He then credits another economist with stating the obvious:
The explanation, de Grauwe says, is that Spain is stuck in the euro straitjacket. As I’ve pointed out on a number of occasions, e.g. here and here, the collapse of the housing bubble has left peripheral European countries faced with the need to deflate relative to core nations; this means years of stagnation plus intensified debt problems.

De Grauwe adds an additional problem: the possibility of a liquidity crisis for a government that doesn’t have its own currency.
Of  De Grauwe's observation, Krugman writes:
...a paper I wish I had written (there is no higher praise).
But, I wrote the very same thing nearly a year ago,and also provided greater insight, beyond that of De Grauwe, by pointing out the problem that the U.K will ultimately have to deal with because they do have their own money printing presses:
Keep in mind, though, that the UK can do one thing the PIIGS can't, that is, print money. The real threat from an increase in the UK debt burden is not default but destruction of the pound via inflation.
So Paul, since you were so moved by De Grauwe's paper, I know you have to be real impressed that I was able to note the same observation in a simple blog post (actually a single sentence) and then, advance the observation further (in just one other sentence), to point out that this does not mean that the U.K will be crisis free, but that the crisis will take a different form, namely, destruction of the pound via inflation. Uh, Paul, that's W-E-N-Z-E-L, just one L. 

2 comments:

  1. Haha... love the ending of your post - it seems I might be getting my daily laughs from your blog too. Great!

    All in all, Paul Krugman is a moron and thanks for taking him up on that. He needs to be corrected... even though I'm not sure it can be done. :-)

    Take care!

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  2. if this was a facebook page I'd press "like".

    ReplyDelete