Sunday, May 25, 2014

Paul Krugman Having a Little Trouble with the Direction in Asymmetric Trends

Steffan Karlsson notes:
Paul Krugman asserts that the ECB has responded in a asymmetrical way to changes in inflation
And look at the ECB in particular. Twice since the crisis hit it has raised rates at the merest hint of above-target inflation, despite good reason to believe that these were just blips driven by commodity prices. But as inflation slides ever further below target, what we get is equivocation and persistent failure to act. If there’s an asymmetry here, it’s in the opposite direction: hasty action against dubious inflation threats, inaction against deflationary threats.
Actually, since 2009, the ECB has cut interest rates five times, a lot more than the two rate hikes. If the ECB’s actions are “asymmetric”, it is in the pro-inflationary direction, not the anti-inflation direction.


  1. Former Bundesbank Vice-President Recommends Gold, Says Current Economic System is "Pure Fiction"

    J├╝rgen Stark, former vice president of the Bundesbank, and also former chief economist of the ECB (unofficial title) says "The System is Out of Control". Via translation from Libre Mercado, here are a few snips.

    Stark noted that central banks, including the ECB, "have completely lost all ability to control and perspective on the economic situation."

    The monetary system was saved in 2011 through concerted action by major central banks worldwide. But, according to Stark, the whole system is "pure fiction".

    The problem is the monetary model itself. That is, the printing of paper currency without real backing and the multiplier by which the commercial banks can expand credit-uncontrolled without prior savings. Stark recommended allocating part of this fictional savings to investment in traditional "safe havens" such as gold or silver.

    Also, in another lecture delivered last week in Paris, Stark noted that the fragile recovery in Europe is not due to the absence of monetary and fiscal stimuli (low rates, debt purchase, etc..) and (more government spending) but the slow deleveraging and lack of structural reforms.

  2. So if a house is burning down and a person throws 5 buckets of water on the fire and 2 buckets of gasoline on the fire, the person tossing the buckets is on balance trying to put out the fire. Good reasoning there champ. The economic circumstances dictate a interest rate cut.

    1. Jerry is looking for the arsonist to put out the fire. That's even better reasoning, champ.

      In case it has escaped your attention, the Fed funds rate has been essentially zero since October 2008. It's pretty hard to cut a rate that's already at zero. Meanwhile, the Fed's balance sheet has ballooned from $850B to $4.3T over the same period. Watching Yellen and Co. try to unwind this sucker is going to be entertaining.

      And what do we have to show for this insane monetary policy? The economy sucks, government spending has not spurred growth, and good jobs have vanished and aren't coming back.

      In other words, Uncle Sam and the Fed have done everything Krugman wanted, and the economy is tits up. I wonder just how disastrous this has to get before Keynesianism is buried for good.

    2. Re: Jerry Wolfgang,

      You have it exactly backwards, Daffy. It's 5 buckets of gasoline, 2 of water. Krugman is only seeing the water.