gut;1582164 wrote:No, it's your assumption that inflation is permanently dead (even temporarily is highly doutbful, as many see inflation in asset prices, which is excluded from CPI).
And, no, the fed doesn't just "delete" treasuries. What you are referring to is monetizing the debt, something that is wildly unpopular and not something advocated for those who believe in stable and strong currencies. It is far, far from the trivial and benign issue you make it out to be.
You also miss the most obvious point - the fed is having to buy a bunch of issues precisely BECAUSE Japan and China are not "scooping them up" as you claim. It's as if the span of your experience and knowledge is trapped permanently in 90's thinking.
Something to keep in mind about your hero Krugman - he advocated creating a housing bubble to stimulate recovery from the internet bubble. And in your world, asset bubbles don't happen because you're trapped in the last century.
LOL Krugman is not my "hero" by the way. I'm a proponent of Post-Keynesian economics and have been recently intrigued by Market Monetarism...Krugman is New Keynesian who only advocates the use of expansionary fiscal policy at the zero bound. He is a deficit hawk when interest rates are above zero.
But for what it's worth, the canard that Krugman actually advocated a housing bubble as you and every other right winger implies is nonsense. This is the article it is from:
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html
If the story of the current U.S. economy were made into a movie, it would look something like ''55 Days at Peking.'' A ragtag group of ordinary people -- America's consumers -- is besieged by a rampaging horde, the forces of recession. To everyone's surprise, they have held their ground.But they can't hold out forever. Will the rescue force -- resurgent business investment -- get there in time?
The screenplay for that kind of movie always ratchets up the tension. The besieged citadel fends off assault after assault, but again and again rescue is delayed. And so it has played out in practice. Consumers kept spending as the Internet bubble collapsed; they kept spending despite terrorist attacks. Taking advantage of low interest rates, they refinanced their houses and took the proceeds to the shopping malls.
But predictions of an imminent recovery in business investment keep turning out to be premature. Most businesses are in no hurry to go on another spending spree. And those that might have started to invest again have been deterred by sliding stock prices, widening bond spreads and revelations about corporate scandal.
Will the rescuers arrive in the nick of time? Not necessarily. This movie may not be ''55 Days at Peking'' after all. It may be ''A Bridge Too Far.''
A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way.
Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?
Bear in mind that business forecasters are under enormous pressure to be cheerleaders: ''I must confess to being amazed at the venom my double dip call still elicits,'' Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side.
Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.
But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
So your assertion that Krugman actually called for the FED to create a housing bubble is grouned in ignorance. My guess is that you're repeating it from an Op-Ed you read in the Wall Street Journal. It is obvious that he is being sarcastic and is quoting the guy from PIMCO and goes on to castigate Greenspan for the stock bubble later on.
