Sunday, October 20, 2013

Probably the Dumbest Thing Krugman Has Ever Written

Of course, this is saying a lot, but Paul Krugman thinks that China selling the U.S. Treasury securities, that they hold, wouldn't hurt the US bond market. He posts at NYT:
 [T]he Chinese wouldn’t hurt us if they dumped our bonds — in fact, it would probably be good for America.

But, you say, wouldn’t China selling our bonds send interest rates up and depress the U.S. economy? I’ve been writing about this issue a lot in various guises, and have yet to see any coherent explanation of how it’s supposed to work.

Think about it: China selling our bonds wouldn’t drive up short-term interest rates, which are set by the Fed. It’s not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up.
China holds $1.27 trillion of U.S. Treasury securities. Depending upon how fast the securities were sold it would not only push upward pressure on rates, but send the Treasury bond market into a tailspin, without massive Fed intervention. As for such a Fed extension of quantitative easing, Krugman writes as though the Fed will never, ever have to take into consideration price inflation. They can just print on and on.

As Lew Rockwell asked in his comments about the debt ceiling: If there is no backlash to printing more money, why is there such a concern about the debt ceiling, just have the Fed print up the money? Of course, the fact of the matter is that there are very serious consequences to money printing. Money printing steals buying power from the rest of us and eventually results in major price inflation.

Although Krugman really appears to think so, the US economy  is not a baby sitting co-op.


  1. China is not holding Treasuries to be nice to the US, they do that to keep their currency cheap. So if the PBoC sells its Treasuries they get dollars (whether newly printed by the Fed or not). What do they do with them? I don't think they'll buy gold. What happens to the exchange rate?

  2. ZIRP is a place of unicorns and rainbows.

  3. Or why collect taxes at all? Think of the stimulus that would have.....

  4. Regarding Rockwell's question, there are two reasons the Fed can't simply "print more money." First, the bonds held by the Fed are part of "debt held by the public" and counted against the debt ceiling. Second, Congress prohibits the Fed from purchasing bonds directly from the Treasury. For these two reasons, Fed can't simply buy up bonds and print money to get around the debt ceiling.

    Regarding the claim that money printing results in major price inflation, where is the major price inflation? Seems like it's time to go back to the drawing board on that one. Why so hard to admit failure?

    1. Jerry, I know it may be difficult for some readers to believe this, but it seems you haven't been paying attention. Dig back through the EPJ archives, paying special attention to the posts on the mad scientist currently in charge at the Fed. Please note Bob's comments on how excess reserves are being handled and the likely effects and consequences of this experiment.

    2. Chris-

      Reason doesn't work with JW- he is a "troll" that just posts things that the average retarded uneducated quasi-socialist "liberal" thinks.

      He never responds to the people that point out how wrong he is- he is a "drive by moron" but at least he helps us understand how the average uneducated Democratic voter thinks.

      Gotta love him for exposing how ignorant and insipid they are!

      No one who reads this blog could actually be so stupid as to post the things he posts!

    3. That business about not buying direct from the Treasury is just a scam so the big banks get to charge a fee for being the middle man in that transaction.
      Not to mention that if China sold their US bonds to the FED, the Fed would NOT be buying them direct from the Treasury.

  5. "Regarding the claim that money printing results in major price inflation, where is the major price inflation? Seems like it's time to go back to the drawing board on that one. Why so hard to admit failure?"

    That's like saying "everything's fine" while you're driving on a road that leads off a cliff.

    1. Derek. I love JW- he is parody of the way communist/socialist retards think. If he really believed the busllshit he wrote he would actually respond to his critics.