I’ve been laying off Krugman for awhile because he’s been so boring and just posting the same stuff - with the occasional link to hipster music (SEE! He IS cool! 99%!). But, I recently did some catching up, and he’s posted some crazy, crazy shit.
First, this editorial, in which he acknowledges speculators are not the cause of rising oil prices (a hard pill to swallow, no doubt, for his brainwashed liberal readers hearing the opposite from whatever borg congressman happened to be on Rachael Maddow that night). Notably, he finishes the article without even bothering to point to a reason why oil prices are climbing. That’s probably because it’s due to the inflation he keeps demanding and defending as an equitable solution to the economic crisis. Maybe if he posts some more Gotye, no one will notice the connection?
But it really goes off the rails once Krugman actually writes about inflation and Quantitative Easing. This is the paragraph that should discredit Krugman forever:
These past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by this piece in today’s WSJ — is that expansionary monetary policy is a giveaway to banks and plutocrats generally. Indeed, that WSJ screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed. And unfortunately, some good people, like Daron Agemoglu and Simon Johnson, have bought into at least some version of this story.
What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways.
That “screed” is 100% right. Pretty soon, people will wake up and see what a tool for the establishment Krugman is. (You don’t get a Nobel Prize and a New York Times column just by posting Bon Iver videos, ya know.)
This “latest fad” is what I’ve been saying since 2008. Read the WSJ article. It’s good. (to get past paywall, you have to Google the title, How the Fed Favors The 1%, then click the link)
But what does Krugman say about it?
Quantitative easing isn’t being imposed on an unwitting populace by financiers and rentiers; it’s being undertaken, to the extent that it is, over howls of protest from the financial industry. I mean, where are the editorials in the WSJ demanding that the Fed raise its inflation target?
First of all, “unwitting populace” is a given. Second, if there aren’t many editorials in the Wall Street Journal demanding the Fed raise inflation targets, it’s probably because being that stupid seems to be a trait unique to Krugman. Why not ask where are the Wall Street Journal editorials saying we need higher prices? Such sycophantic and political apologetics only fly where the readers are too indoctrinated to criticize their Princeton professor guru.
If there are any “howls of protest” from the financial industry, they’re out of concern for the uncertainty of QE implementation - which paralyzes the market - and the eventual economic armageddon the policy will usher in, ya know “Zimbabwefication?”
The naive (or deliberately misleading) version of Fed policy is the claim that Ben Bernanke is “giving money” to the banks. What it actually does, of course, is buy stuff, usually short-term government debt but nowadays sometimes other stuff. It’s not a gift.
Here, Krugman is naive (or, more likely, deliberately misleading). It IS a giveaway to the banks. They get to middleman these transactions and make tons of money with no risk. The Fed can’t buy bonds directly from the government, so the banks buy them, then flip them to the Fed at a profit. Yes, the Fed is buying “stuff” - but it’s paying more than what the banks paid for it. Furthermore, the Fed is lending the banks the money to buy the bonds from the government - at 0% - so the banks don’t even have to raise capital to run these transactions. It’s pure profit for the banks: borrow from the Fed at 0% to buy bonds from the government. Sell the bonds to the Fed for a profit. Pay back the 0% Fed loan, keep the profit. How is that “not a gift?” Let me become a primary dealer, and I’ll gladly suffer through billions in guaranteed yearly profit for doing nothing.
Furthermore, Fed efforts to do this probably tend on average to hurt, not help, bankers.
Really? Because, last I checked, they were all about the go under unless the Fed initiated these policies. Remember “The Financial Crisis?” Elsewhere, Mike Kimel refutes Krugman’s claim that expansionary monetary policy hurts bank profits by lowering their net interest margin. Also worth mentioning is that The Federal Reserve is owned by, and comprised of, banks. So, not sure how willing the relevant parties would be in undermining each other’s interests.
Finally, how is expansionary monetary policy supposed to hurt the 99 percent?
By printing money to give to the banks for free (ZIRP)? By keeping real interest rates negative to destroy everyone’s savings? By increasing inflation to make things - like gas - cost more? Aren’t these things the 99 percent could be “hurt” by?
No, the real victims of expansionary monetary policies are the very people who the current mythology says are pushing these policies.
So….the banks are the victims? Soak that in for a second. That’s what he’s saying here. I hope Occupy Wall Street gets around to programming its automatons to protest Krugman for that.
And that, I guess, explains why we’re hearing the opposite. It’s George Orwell’s world, and we’re just living in it.
Quite right.
…..
Epilogue
Krugman rejoins Mike Kimel’s criticism of him - in typical Krugman fashion: wrong AND condescending.
Kimel apparently thinks the Fed is buying privately issued MBS, aka toxic waste; actually it’s only buying agency debt, which already has an implicit federal guarantee and is functionally not much different from long-term Treasuries.
Next question?
Uhhhh…. The Fed is buying MBS (mortgage-backed securities). Here’s the Fed’s balance sheet (4/12/12…I’m using last week’s so I have a permalink). See that line item that’s “Federal agency debt securities?” For $96 billion? It’s right over the $836 billion for “Mortgage-backed securities.” YES, those are “agency MBS” - which means they are insured by Fannie/Freddie/Ginnie/whatever. But who cares? That’s most mortgages out there! I am sure Kimel is aware of this condition for Fed purchase. It’s assumed, for Christ’s sake.
And they are “toxic waste” - that’s the only reason the banks sold them to the Fed! Jesus. If they were worth something, the banks would keep them! That’s what banks do, remember? Make money.
But how could banks unload toxic assets to The Federal Reserve?! Well, for starters, J.P. Morgan is the custodian of the $1.25 trillion MBS purchase program. Banks are not the “real victims of expansionary monetary policies,” Krugman!
As far as the smug, “Next question?” goes…
If Krugman has “The Conscience of a Liberal,” then what does the conscience of a megalomaniac corporatist look like?
