Saturday, May 28, 2011

Krugman Twists the Knife

Sorry. But this was too good to pass up. I mean, you’ve got Krugman pitted against the 5-billion-dollar-a-year guy. It just doesn’t get any better.

Who You Gonna Bet On? An Update

”It’s not quite a year yet since Business Week ran a piece ridiculing my concerns about prolonged economic weakness, comparing it to the wisdom of John Paulson, who saw a boom — particularly in housing — just around the corner.”

You just know I had to click on the link.

Krugman or Paulson: Who You Gonna Bet On?

”July 1, 2010

History will show that the week before the nation's 234th birthday, Paul Krugman, Nobel Laureate and professor of economics at Princeton University, went all in on Keynesian orthodoxy. To regular readers of his column in The New York Times, this was not a surprise. Since the financial crisis began, Krugman has been adamant that the federal government must fearlessly run up deficits to compensate for weak private spending and keep the U.S. economy from death-spiraling into deflation.

Now his warnings have taken on an even more dire tone. The threat is not merely the dreaded "double dip." If the leaders of the developed world hold to pledges they made at the G-20 summit in Toronto and cut government spending, Krugman argues, we face nothing less than a "third depression"—perhaps not as singularly devastating as the Great Depression, which ripped the U.S. economy in half, but comparable to the Long Depression that followed the Panic of 1873, a grinding period of chronic social need and dissension.”

Now, before moving on, let’s just do a quick check of the headlines to see how the world’s economy is doing. You don’t even have to leave BusinessWeek.

World stocks shake off tepid US economic news

But perhaps you should so we can make this unbiased. From the Associated Press.

Economies around the world are growing more slowly

Moving on. One of the things I want you to notice is how the internet changes everything. There was almost a zero chance before the internet that anyone would ever go back and look at this article. But now, not only can you go back...everyone can go back and read it for themselves. And notice even more.

Now, back to BusinessWeek -- the Krugman vs. Paulson article.

”With the American taxpayer covering his downside, investing in U.S. financial institutions was easy pickings. Paulson's latest 13f filing with the Securities & Exchange Commission, which records his holdings as of Mar. 31, indicates nearly $2.995 billion of Bank of America common stock and $2.052 billion of Citigroup (C) common. Despite healthy advances from their spring 2009 lows, banks may have more room to run, particularly if Paulson is correct in the estimate he made to investors, according to The Wall Street Journal, that housing prices will rise as much as 10 percent next year.”

These graphs are as close as I can get the slider bar at Google Finance to land on March 2010 and go to the present.

Bank of America (BAC)

Citigroup (C)

US housing market still falling -- US property prices fell for the 57th consecutive month in March – and showed their biggest fall in three years, according to analysts at Zillow

Don’t turn off your brain. Look at those investments that Paulson made and predicted -- BAC, C and the housing market -- and keep in mind he still made $5 billion. He can be that wrong and still make $5 billion. You know the difference? He has “the American taxpayer covering his downside”. And BusinessWeek points it out with all the oblivious glee that only the banksters and their toadies can summon with 14 million Americans unemployed.

Speaking of which, the writer of the BusinessWeek article? Hugo Lindgren? Look who he works for now. With the internet, you can get a glimpse at inside baseball too.

Don Brown
May 28, 2011

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