Wednesday, November 30, 2011

Krugman Mystified

The world's central banks have just announced a program to print huge amounts of money via dollar swaps and Paul Krugman doesn't understand why it is a big deal. He writes:
I am, I have to say, somewhat mystified. Of course the Fed will make dollar liquidity available to other central banks as needed; that was never in question, because Bernanke doesn’t want to be the man who destroyed the world to save a few pennies. And reducing the interest rate on those loans seems to me to make virtually no difference; it was a trivial charge anyway.

So this looks to me like a non-event. Yet markets went wild. Are they taking this as a signal that substantive actions — like the ECB finally doing what has to be done — are just around the corner? Are they misunderstanding the policy? Was this cheap talk that nonetheless moved us to the good equilibrium? (If so, not enough: Italian bonds still at more than 7 percent).

A very strange day.
It usually takes months to prove Krugman clueless. This time it will take just a little more than a week. The swap announcement is the first step in a major money printing plan. Or do you think Geithner and the President had European Council President Herman Van Rompuy over to the White House on Monday, along with European Commission President José Manuel Barroso, and High Representative Catherine Ashton, because they are great conversationalists over tea?

December 9 is the day the European Central Bank will announce its new money printing plan. You heard it here first. Krugman is clueless or mystified, whatever. I guess in this context it's pretty much the same thing.


  1. The psychopaths who run the world have these traits in common:

    1) they lie effortlessly, convincingly, all the time, and without remorse.

    2) they believe they have the right to rule.

    3) they don't care who they hurt; the important thing is that they retain power.

    4) nothing is ever their fault.

  2. You have called it, all along.

    Well done, an honor to follow your work.


  3. yeah RW, this is def one of my fav blogs and must reads everyday. I've been following for some months...your recent piece highlighting various posts throughout, you called it.

  4. I Love It!!!
    I just check in with Wenzel once or twice a day and I'm smarter than a NOBEL PRIZE WINNER!!!!

    That's either very good or very bad...

  5. Bob, how do you come to that conclusion about the ECB printing money? I don't see the Germans going along with that since it will strip away any means of controlling the spending of the profligate Southern countries who will demand that the ECB bail them out endlessly. Germany understands the socialist mentality enough to know that having the ECB monetize debt is akin to leaving a socialist alone in a bank with the vault wide open.

    My take is that Germany is going to sell unification to the markets which is what Germany has been after for a long, long time. Germany knows that when the Euro members are brought to their economic knees, they'll agree to go along. If they do somehow pull this off and bring in not only the currency members but all members, it could spell real trouble for the US and Japanese governments.

  6. anon @ 11:52pm:

    just my opinion, but I start from the presumption the eurozone will stay intact and will continue to get stronger - centuries of war, they are tired and they want a stronger union in every way imaginable. Yes, this is centrally planned but it would take forever the other way around, if ever. I'm not agreeing or disagreeing with this - it is what it is.

    But you're right about the profligacy - the ECB's mandate is to remain 'independent' - they'll bail out the banks but not pay for the politicians wasteful spending to get votes.

    Hence the fiscal union rules and agreements. There's no mechanism in place to deal with a country that does not meet target goals. Again, not agreeing or disagreeing, just the way it's going.

    So the ez people are getting the worst of both ends - inflationary money printing & austerity measures as politicians will not be bailed out by the ECB, like the FED funds the deficits of the USG.

    Germany knows where this is going - ECB must guarantee all the debts of the big banks - there's no one else to backstop - but in the longer term, in whatever new IMS, ez will have the agreements in place for a more balanced economic/monetary policy. And they want/need more central control.

  7. "what's a penny?"

    Pretty much zero dollars. 15¢ today is equal to one penny back in 1913.