Thanks to the Las Vegas Sun for printing the commentaries by The New York Times’ Paul Krugman. His columns get me going as well as double espresso, for a fraction of the price.
It’s no secret that Mr. Krugman thinks government needs to spend money to get out of the economic downturn. Unfortunately, the government has not taxed enough to have money to spend, so it must borrow or print that money.
Mr. Krugman, in his column in Tuesday’s Sun, writes that he would like the Federal Reserve to continue its policy of very easy money, but here’s where reality raises its ugly head. If the Fed just prints more money to distribute into the economy as it has been doing, it dilutes the supply of money and makes individual dollars worth less (this is the definition of inflation). Still no great problem unless you need to buy gold or oil.
But here’s the rub. We have also been financing our debt by borrowing money from such nations as China. They see that our money is being diluted and therefore devalued. In other words, the money they are owed is worth less, substantially less, than the money they lent us. This is a problem because we need them to continue to lend to cover our deficit spending. Inflation greatly favors the borrower (us); the lender is shorted the buying power of the money he lent.
There are two solutions. First, stop printing and borrowing money to subsidize our government’s spending and, second, raise interest rates to make our currency more attractive to hold.
Mr. Krugman rails against both these ideas without proposing a solution to what we are going to do as the dollar continues to decline in value and becomes less desirable to lenders and the world in general.
""Unfortunately, the government has not taxed enough to have money to spend, so it must borrow or print that money""
There lies the problem, spending more than what you get, not only government, but also the people.
http://www.nytimes.com/2009/08/28/opinio...
Paul Krugman tells us to not worry about our looming $9 trillion deficit. It only impact is political. Krugman is arguing that the debt to GDP ratio going from 30% to 70% is okay.
Krugman says "We're looking at a rise in the debt/G.D.P. ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of G.D.P., or 5 percent of federal revenue. That doesn't sound like an overwhelming burden."
The slippery slope here is Obama depends on raging high inflation to diminish the original borrowed value and the faith of the lenders like China that they have made a good investment
It is called Keynesian economics. Its theories have been disproven long ago. It is the same series mistakes that prolonged ending the Great Depression for many years.
jlb, for once I agree with you, put the flags out
The U.S. dollar is on life support as is will go the way of the German Mark of the 1920's (hyper-inflation).
The German government of the 1920's continued to borrow more to pay of existing debts and printed more money resulting in average citizen savings being wiped out and then a power struggle by extremist (communist and fascist) resulting in the end of democracy by 1933.
Do we want history to repeat itself?
Sorry typo.
The U.S. dollar is on life support as it will go the way of the German Mark of the 1920's (hyper-inflation).
The German government of the 1920's continued to borrow more to pay off existing debts and printed more money resulting in average citizen savings being wiped out and then a power struggle by extremist (communist and fascist) resulting in the end of democracy by 1933.
Do we want history to repeat itself?
ynotjohn,
No we dont, twice!!
It's Chicago on the Potomac...
It has been a Republican and Democrat problem. GW Bush ran up big deficits and in my mind was a liberal of big government spending (i.e. No Child Left Behind, Medicare Part D, Homeland Security, etc..) that is not being a conservative!
Mr. Dornlas. Your words, "There are two solutions. First, stop printing and borrowing money to subsidize our government's spending and, second, raise interest rates to make our currency more attractive to hold."
You seem to have trouble with the thinking process. Let me help you. There is only one solution that makes sense and it seems to have escaped you: STOP SPENDING!
You can thank George Bush for the mess we have
to dig ourselves out of.
We will never forget.
Thank you George Bush for keeping us safe for the last eight years.
We will never forget.
You call us getting hit on 9/11, keeping us
safe?