The Paul Krugman Thread


Do you reckon even scenario 2 would effect us?

I just feel that any loosening that comes our way would be pissed away on high pay, debt re-servicing (household/national), high professional fees, high MW payments, high welfare, badly administered jobs schemes, high costs of abode, high rents, rates and all sorts of other unproductive shite. It would all just disappear. I don’t quite see where the impetus would come from to build a factory, create an online start-up, invent something cool etc.

Maybe it would soak up some unemployment through multipliers in the domestic economy, which would be great, but wouldn’t it just be another bubble of sorts? Sustainability for us surely can only come from lower costs for everything, and I don’t know how you do it other than by cutting to hell and starting again.


Oh, well I agree that the country is run like a third world circus - but we do keep voting the morons in.
And I think “cutting to hell” …could leave you stuck there :wink:.


Never understand this, probably because I’m dim…

Youre already borrowing way, way beyond your means to pump stimulus into the economy.

Could you put a figure on how much more we should borrow to fund this utopia you have in mind?

A figure. A number.
Thats all we want.
Thats all we need to hear from you now.
No bullshit, no obfuscation, no distraction, no personal attacks.
How much money would we need to borrow to sort out our problems?**




Completely wrong, as usual. … -1.1321934


Start at page 1 of this thread and keep reading.

Its all been dealt with.


Spoken like a man with a job.

Larry, it seems to me that the problem we have, the key problem, is mass unemployment, not how much you are paying for shit (although that is not unimportant)

I have been in Australia for 5 years. I cannot conceive of circumstance where the people of the Government would tolerate the levels of unemploymnet and emmigration that have held sway in Ireland since 08/09. That would be the number one issue; getting people back to work. And rightly so.

That fact is, as Banjo put it in another thread, Ireland is not different. Krugman is right.

Sure, some major political/structural/institutional changes needs to be made but the priority is getting the economy moving so that ordinary people can have a shot of getting a job.

I have met countless Irish kids over here, who are scrounging around on working holiday visas, trying to get as much work and money and time out here before they head back to almost certain unemployment.

Its a fucking obscenity frankly.


Rick, this is grossly unfair. I have made 2 posts on this. If you read the one you quote above, isn’t it clear that jobs are the main focus of it? The entire premise of the thing is about the difference between real and fake jobs. And here’s the follow-up, which you don’t quote, but which underlined my point:

That’s a post almost entirely about sustainable jobs, as is the first one.

I’m sorry to say Rick that way too often ideology clouds your judgement on these things. In this instance, you saw that I had a pop at the Beards and Shinners, and took that as a sign that my point was somehow neo-liberal or whatever. If you read the actual words though, its about new factories, improving competitiveness, sustainability, lower costs of abode, lower rates on job creation, lower fees for lawyers and accountants, creating multipiers to create jobs etc. etc. etc.

You seem to think my interest is in cheaper groceries for myself so that I have more money to put petrol in the Bentley. If so, let me assure you you are very, very wrong.


It’s news to me that Ireland is a small, open economy. Never heard that before. Thanks.


I’ve had the misfortune of reading this entire thread and I’ve never seen an answer to that question.


I notice today some peripheral hub-bub about wheat prices rising due to bad weather in some far flung place.
This will, naturally, have some consequences for those of us who love Weetabix and brown bread.
(Not to mention the asset-less billions who require wheat to continue living)

There we have inflation without any economic cause; bad weather = reduced crop = higher prices.

One of the the fantasies that the Krugmanites live under is that all economic outcomes have economic causes.
Thus, in their minds, everything can be explained by their models.

QE is no exception.
DP and Yogi have argued that QE is in fact deflationary.
(I notice that Izzy Kaminska on FTAV is also pushing this line.)
From what I can make out the reason for this is not because QE creates money to drive prices up, but because it removes assets from the market, leaving a stable monetary base to pursue a diminishing pool of assets. Thus asset prices rise.

The magic at work here, is that the ‘stable pool of money’ falls in size relative to the ‘value’ of appreciating assets.
This would be similar to asset prices staying the same and the pool of available money contracting; it would appear deflationary.
That this mechanism has essentially the same effect as money printing is ignored - prices of available assets rise.
Thats what QE is and that is what it is for; to inflate asset prices and call it deflation; because whatever happens they cannot countenance asset prices falling and calling it inflation. We are down the rabbit hole here, people.

This is the mendacity and double speak that these people are capable of and intent on.
Whatever happens, gaming the GDP numbers (by trading of higher priced assets within an economy) must take precedence.
Its the illusion of resolution for the plebs, while insolvent banks can trade illiquid and/or underwater assets to clear their books.

I am minded of the idea of relativity in physics, explained to me thus;
You are standing on a train platform.
As a train passes you by, you notice one passenger throw an apple, forwards, the length of the carriage to his friend.
He begins his throw as his position reaches the far end of the platform. His friend catches the apple as his position reaches the opposite end of the platform.
How far was the apple thrown?
Well from their perspective it was thrown 10m, the length of the carriage.
From your perspective, it was thrown 100m; the length of the platform.

This is the problem with QE (and I submit the beginning of the end for Keynesian economics); it is not based on objective fact, it is based on perspective.
The game being played now is to persuade you of one perspective or the other; Beans n’ shotguns or the welfare state?

From what I can see, the outcome is the same.


No. You’re wrong. You don’t understand the monetary system. This should help explain where you’re going wrong:
QE doesn’t create money it’s an asset swap:
You are a bank - you own a Treasury which you hold on account at the Fed.
I am the Fed - via QE I buy the Treasury from you, with reserves which I create (this is the part you think is money printing) - I credit your reserve account with these reserves BUT I debit your Treasury account by one Treasury. I am removing this Treasury from the Private sector. You are down one asset (treasury) and up one asset (reserves). These reserves will sit in your reserve account at the Fed earning the IOER rate.

This can have a deflationary impact (as is slowly being confirmed by reality) because the asset you owned, your Treasury, was yielding you perhaps 3% a year (depending on when you bought it etc.) but the asset I have just swapped with you earns just .25% (the IOER rate). You can see this interest lost to the Private sector as remittances from the Fed (and BOE) to their Treasury. That is a deflationary effect. QE does not drive prices up because it does not create net money; the misunderstanding of QE has had a more inflationary impact than the reality of QE.


They are still issuing Treasuries so it’s more than just that.

Broader if you will, like money. Why would the bank do that transaction? That’s the deflationary force.


Why credit deflationion is more likely that mass inflation: An Austrian overview of the inflation versus deflation debate - Vijay Boyapati -> … Debate.pdf


But aren’t these reserves now available to be used as collateral to lend against? In other words, a bank lent money to the government for 10 years, but thanks to the Fed it has now been repaid its loan pretty much immediately. They can now use this early repayment to recycle their reserves back into the system much quicker. Add in the multiplier effect and interest on these multiplied amounts and you’ve just added to inflation.

Isn’t the shortfall between 3% and 0.25% taken into account in the price paid by the Fed to the bank in the first place? The bank has effectively received the difference in the two interest rates upfront in the initial price agreed in the asset swap/purchase. So there would be an immediate inflationary impact, which would counteract the deflationary impact of what you are describing.


No, banks don’t lend reserves. A common misconception which - slowly - the world seems to be realising.
And collateral-wise there’s no difference between Treasuries and Reserves.

Hmmm, not sure what you mean here. That the coupons you are giving up are fully priced into the contract? That’s not true of a yielding security, the price you sell at reflects a defined yield from that point forward. So if you buy a 10Yr Treasury this Monday it will be earning a yield of 1.6% from then til maturity. If you then sold this Treasury in a month, and the price had gone up, so that you were selling it at a yield of 1.5%, then you would make a capital gain on your Treasury but you would lose out on all future income streams (which would equate to 1.5% p.a til maturity); you would have cash from the sale which would yield zero. If the banks were selling Treasuries to the Fed that were at that price yielding .25% then you are correct in that the deflationary impact of interest lost would be zero. But the banks are selling treasuries that are yielding more than that so are losing the yield differential. This is then “earned” by the Central Bank - as is seen in the remittances.


They don’t lend out their reserves, but isn’t it true that they lend out AGAINST their reserves, which was my point? The more hard cash (not Treasuries) they have the more they can lend. And in any case, the real point is that the Fed basically repaid the 10 year loans given by the banks to the government early. This early repayment means that the cash can get recycled a lot earlier than before - hence inflationary. This was the whole purpose of QE - to buy assets from the banks so that they can re-lend this money to the plebs (while taking whatever cut they wanted along the way).

Ok I think I know where you’re coming from now - if I borrowed money from the bank for 10 years that would be inflationary, because of the extra interest paid. But if I went back tomorrow and we both agreed to cancel the loan then it would be deflationary. Is this what you mean? But does the Fed actually cancel the treasury? I’m pretty sure it doesn’t, so this interest is still going to be re-entering the system from somewhere, right?


This is starting to get interesting now.

I’ve had a few beers, so I wont join in tonight, but carry on…


No it’s not true. Under a fiat system, with interest rate targeting, then banks can always get reserves. (If the CB didn’t provide the required amount of reserves to clear then interest rates would immediately explode beyond control.) Banks will always lend first, then get any required reserves. I think you might be confusing capital constraints with reserve constraints … capital constraints exist and are a real limit on lending - reserves are not. Also, there is no difference between cash and a treasury - if you think about it cash is just a treasury that doesn’t pay a coupon nor mature. Which answers your next point…

So, you see, there’s no change here from any sort of “repayment” – the Treasury and “cash” are the same. I would agree that the main winners from QE are the Primary Dealer banks who take a cut on the increase in trade in treasuries. But it’s no massive windfall for them – and I’m personally quite anti the large bank. (The first solution to improving financial stability should be a hard limit on the size of bank balance sheets, no excuses.)

No, not really what I mean. The problem is simply that the private sector is losing interest income because the central bank is removing interest-bearing securities via QE. The Central Bank doesn’t “cancel” the
Treasury but you then have one arm of the public sector paying interest to another arm; that interest does not now make its way into the private sector… and it adds up significantly over time.