Thursday, December 1, 2011

Reuters Details How Keynesian Negative Forecasts are Way Off Base

Just two weeks ago Keynesian (" the evidence clearly shows that weaponized Keynesianism works – which means that Keynesianism in general works")economist Paul Krugman wrote at NYT:
The important thing is not to lose sight of the fact that what we have now is a demand problem. Demand, demand, demand.
Six weeks ago he wrote:
The crisis we’re in is not something unprecedented. It’s a close cousin to the Great Depression — milder, but recognizably the same sort of thing...And those who are determined to forget the past run a high risk of reliving it — which is why we’re in the state we’re in.
Here what I wrote three days later:
... because of Ben Bernanke money printing, the economy is about to experience a manipulated boom. The Keyenesians don't see this.. Meltzer correctly points out that many of the Keynesians, such as Paul Krugman, are calling for even more government spending, even though that did nothing to turn the economy around (The manipulated turn started when money started moving out of excess reserves).
Here's what is really going on via Leah Schnurr at Reuters:

U.S. factories shrugged off weakness in the global economy in November as manufacturing activity rose to its highest level in five months, a fresh sign the domestic economy was accelerating. 
Recent data on consumer spending and private-sector job creation has also boosted optimism on the path of growth. 
"The economy seems finally to be developing real momentum," said Ian Shepherdson, an economist at High Frequency Economics in Valhalla, New York. 
The Institute for Supply Management said on Thursday its index of national factory activity rose to 52.7 from 50.8 the month before, beating analysts' expectations and showing the sector continues to expand. 
The added momentum, which also showed through in the details of the report... in the United States, even the country's moribund labor market is perking up. A gauge of private-sector employment on Wednesday that showed strong hiring in November has boosted expectations that a more comprehensive count from the government on Friday will also show improvement.... 
Total retailer sales over the last weekend reached $52.4 billion, up from $45 billion last year, according to the National Retail Federation... 
Separately, the Commerce Department said construction spending rose 0.8 percent in October, beating expectations. 
Also pointing to growth, small businesses borrowing posted its 15th monthly double-digit increase in October, the Thomson Reuters/PayNet Small Business Lending Index showed.
Bottom line, Krugman's Keynesian "demand, demand, demand" theory is all wet.

Fed manipulation distorts the economy and directs demand to the capital sector, the down phase of the business cycle is the readjustment phase from the distortions. The current Fed money printing is again distorting the economy, which is causing some of the boom. The climb in retail sales is from the earlier Fed printing (which will be followed by massive price-inflation, which Krugman doesn't see either).

It appears Krugman knows he is wrong about his forecast on the US economy, he barely writes about the US economy anymore. It's the same about his deflation talk. He mostly writes about the eurozone, in between posting boring music youtube videos. The man is a walking, talking, writing forecasting disaster, with a bad taste in music.


  1. I'm still waiting for you to admit that you've been wrong about your forecast this second half. Of course, you'll keep on censoring this post.

    Clueless Keynsian Trend Follower Goldman Sachs vs Clueless Austrian M2 Follower Bob Wenzel

    GS: “First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels. “

    BW:This will change. Commodity prices will climb dramatically in the second half and will be joined by a roaring increase

    Gas Prices
    PPI: Commodities

    Both commodities and gas prices have been lower this second half so far.
    GS: Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin.

    BW: Interest rates have likely already started a multi-year climb. The Chinese have stopped buying, the Social Security trust which at one time bought as much as 25% of Treasury offerings has turned into a net seller AND a price inflation premium will start to expand as a part of nominal interest rates.

    10 year bond

    Interest rates have never been this low
    BW: Wage inflation will start to spread beyond Silicon Valley, resulting in more people taking the increase in nominal wages.

    Aggregate wages

    Still don't see any out of control wages. Still climbing at historically low rates.
    Bottom line: Price inflation and interest rates will both be higher by the end of the year--much higher.

    PPI: Finished Goods

    Look at that dramatic slow down. Both CPI and Finished Goods have risen a lowly .7% total in the past 6 months. So much for that “accelerating inflation.”

    Bottom line: Got that? Austrians fooled again!

  2. Krugman is just a state-sponsored terrorist tasked with cheering on counterfeit money printing for his Bankster Masters. Got gas? Print money. Got a zit? Print money. Got space aliens attacking? Print money.

  3. I don't pay much attention to Krugman other than the rebuttals from Austrians regarding Krugman articles (though I have read some of his earlier books which aren't as bad as one would think). Nowadays, he just isn't worth my time.

    I guess what I am getting to here is that due to the fact that I am a musician, I am curious as to what music he has been posting. I guess that I could search through his archives, but that would take forever due to the fact that it is primarily an article title search.

    If you could, can you provide me with some examples of the music he's been posting. It doesn't have to be all inclusive, just give me a few examples so that I have an idea of what you're talking about.

    I wish to thank you in advance for your consideration in this matter. ;)

  4. So neither of you two are right? Your conclusion does not follow. The economy is picking up so how does that make Krugman wrong? We have expanded the monetary base and did our best to forestall contractionary policy and demand is picking up.

  5. John Donnely, please re-read EPJ's posts since august.

    Bob, you need to write a piece on PK, JS and NR.

    And you need to warn RP that the theme of 2012 will be 'The Cost of living'. Forget everything else. He should use the cost of living for a nurse as an example. Last ten years and tell the American people that the destruction of the dollar must stop.

  6. "best to forestall contractionary policy"

    What "contractionary" (sic) policy do you speak of? This certainly hasn't been the case with regard to central bank actions in the past 3 years, nor that of government debt accounts.

    "demand is picking up"

    No, you don't say. But, then again, that's the problem. There is so much more to economics than merely people supplying it and other people demanding it. If you want to supply something then you have to defer consumption in order to build capital, if you want to demand something, then the scarce resources of which the market makes use of must be put to their most efficient ends to serve those demands. You aren't going to goose the system by merely printing more currency.

    Wenzel has been calling this pickup in the economy for about 2 months, I don't think that he missed a thing. Further, he understands the amount of base money and reserves held at the Fed, much of which is leaking out at a growing rate (M2) of over 15%. All you are seeing in this recovery is that the great amount of money created over the past few years is beginning to grow with regard to deposits. This means that people are spending this new money and the receivers of this money are depositing it-- yes, demand is picking up.

    I must ask you, what do you think is going to happen to prices in this scenario?

  7. No doubt Krugman will claim the improving economy is a sign that "Keynesian policies worked", and that if we'd listened to those stone-aged conservative economists, we'd all be living in Hoovervilles by now.

    He is of course right in one sense. Massive Fed intervention in the economy, which he supports, will have led to a boom - however short or artificial that boom actually is. I'll be interested to see how he rationalises away escalating price rises though, and why this is actually good for America.

    He may also start approving of Obama's stimulus efforts, which would be strange considering that he initially thought a $600bn stimulus would be enough (NYT, Nov 14, 2008), but then claimed $775bn was too small, and that he'd actually meant that $600bn as a "per year" figure - despite not writing that at the time.

  8. So it's a good time to make some money in the markets before the next crash?

  9. Ryan,

    Yes and no. Any time is a good time to make money in markets. But, when the market is up due to monetary inflation you must ensure that you're outpacing price inflation (i.e. that the asset actually is increasing in value in real terms). The key to any successful investment is identifying an undervalued asset before anybody else does, it doesn't matter if the market is up or down.