Krugman Pans Bernanke

I can’t say as I’m surprised. And I didn’t even watch Bernanke’s historical press conference.



Professor Krugman seems to be a lone voice, crying in the wilderness -- if you can call a column in the The New York Times and a highly ranked blog the wilderness. And it’s not like he’s the only voice out there either. So I guess my analogy is falling apart. Which makes me wonder what is really going on here.

It all seems pretty simple to me -- The Golden Rule. Those with the gold make the rules.

If you’re sitting on a pile of money, you don’t want inflation to eat into it. Normally, you’d invest it somewhere. Somewhere safe. But zombie banks aren’t safe. The economies of the rest of the world aren’t safe. That leaves good old Uncle Sam. Remember last week when the stock market went nuts because Standard & Poor’s threatened to downgrade America’s credit rating? Do you know what happened? Here’s Fareed Zakaria’s take.

”But all evidence suggests that the U.S. does not face an immediate crisis. Take a look at the simplest indicator: the day that Standard & Poor's raised its now famous warnings, the markets decided to lower America's borrowing costs, and the dollar rose against its principal alternative, the euro. In fact, the real problem for America may well be that it does not face a short-term crisis.”

On the day that Standard & Poor’s decided to threaten the U.S. credit rating, the world decided the safest place to put money was in U.S. Government securities. I hope it occurs to you that this is the same company that was rating dodgy mortgage-backed-securities as “AAA” before that house of cards fell down.

If all this leaves you confused, here’s the wrap up. The Fed is going to make lowering the unemployment rate subservient to keeping inflation in check. The cache of money the rich keep in the banks will be protected at the cost of high unemployment.

I hope all this will help you understand when Paul Krugman explains that Ben Bernanke is arguing against his own beliefs -- against the economic theories he espoused prior to becoming Chairman of the Fed.

Bernanke Wimps Out

”This doesn’t make any sense in terms of his own expressed economic framework. I think the only way to read it is to say that he has been intimidated by the inflationistas, and is looking for excuses not to act.

Maybe he has no choice in the matter; but this doesn’t change the fact that he’s not making sense, that his own theories — and for that matter the doctrine endorsed by the Fed itself — says that the central bank should be doing much more quantitative easing, not stopping with the US still facing high unemployment and the unemployed themselves increasingly desperate.”

Be sure to check out the graphs.

Don Brown
April 28, 2011