Thread: The Federal Reserve is powerless to help

I am thinking that most everyone here will agree with this.

Why do those at the federal reserve think that making people borrow more, in a balance sheet recession is going to help? Talk about sheer ignorance of their own area of expertise!

It is frustrating.

People are saving, so that they could pay down debt, not so that they can create more debt.

New Economic Perspectives | New Economic Perspectives

I think Krugman addressed this excellently just yesterday.

I wrote the other day about the nature of our depression, and how Very Serious People seem determined to block all useful responses — all in the name of sound policy, of course. While I’m at it, however, I realized that thinking about the depression this way may offer a better, or at least different, answer to the question that originally inspired both my Sam and Janet post and my work with Gauti Eggertsson: How can the answer to a crisis brought on by too much debt be more debt?

The story once again: first, we had a period of too much optimism about debt, in which debtors borrowed and spent too much; since one person’s debt is another’s asset, creditors had to be induced to spend less via high real interest rates. Then people remembered the dangers of debt, and we moved from leveraging to deleveraging. But the problem is that this isn’t symmetric, because you can’t get real interest rates low enough to induce sufficient spending on the part of those not deep in debt.

So one way to explain our depression is to say that debtors, as a group, are trying to deleverage too fast, in the sense that the collective rate at which they are trying to pay down debt isn’t feasible given the zero lower bound on interest rates.

And that’s the role of fiscal policy: its goal is not to stop aggregate deleveraging — the public sector doesn’t have to run up debt as quickly as the private sector runs it down — but to slow it down to a pace that can be accommodated by monetary policy.

The point is that if you don’t do that, and also foreswear unconventional monetary policies, you may feel that you’re being all virtuous and sound in your policies, but you’ll also be perpetuating a depression.

So there’s the answer to anyone who declares that it’s stupid to think that more debt can help a problem caused by too much debt. And who knows — maybe someone will even listen. Stranger things have happened.

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Originally Posted by NAKED N00B

I think Krugman addressed this excellently just yesterday.



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Imo, Paul Krugman makes good sense 15% of the time, some sense 20% of the time, is wrong 55% of the time and sounds flat out nuts 10% of the time (like his 'alien invasion' theory).

The above is a good example of this.


The answer to too much debt is NEVER more debt.

That's no brainer - "the borrower is server to the lender". Thus, if you want to enslave the people, you flood them with debt (which the FED can create ad infinitum). Cheers.

Originally Posted by DA60

Imo, Paul Krugman makes good sense 15% of the time, some sense 20% of the time, is wrong 55% of the time and sounds flat out nuts 10% of the time (like his 'alien invasion' theory).

The above is a good example of this.


The answer to too much debt is NEVER more debt.

Firstly, what was nuts about saying a perceived alien invasion would help solve economic problems. It was intentionally facetious, but the important part was grounded in reality. The need for some massive build up to boost aggregate demand would be fantastic for the economy.

Secondly, how can you honestly say debt cannot be the answer? Is debt the answer when you seek to improve your human capital by going to college? What about when you want to buy a house and need to take out a mortgage? A huge number of businesses are started through debt.

Debt is a crucial part of any modern economy. To portray it as a constant evil is nothing short of ridiculous.

Originally Posted by NAKED N00B

Firstly, what was nuts about saying a perceived alien invasion would help solve economic problems. It was intentionally facetious, but the important part was grounded in reality. The need for some massive build up to boost aggregate demand would be fantastic for the economy.

Secondly, how can you honestly say debt cannot be the answer? Is debt the answer when you seek to improve your human capital by going to college? What about when you want to buy a house and need to take out a mortgage? A huge number of businesses are started through debt.

Debt is a crucial part of any modern economy. To portray it as a constant evil is nothing short of ridiculous.

Yo say whaat?!

Originally Posted by NAKED N00B

Firstly, what was nuts about saying a perceived alien invasion would help solve economic problems. It was intentionally facetious, but the important part was grounded in reality. The need for some massive build up to boost aggregate demand would be fantastic for the economy.

'Paul Krugman: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.
It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish a great deal.
If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –'

Watch GPS: Krugman calls for space aliens to fix U.S. economy? – Global Public Square - CNN.com Blogs

It should be obvious why this is nuts.

According to him, then the government should start fake cold wars to stimulate economies.

Build trillions of dollars of unused stuff at massive debt cost to get out of a recession.

Ridiculous...and if you don't see why, I give up.

Secondly, how can you honestly say debt cannot be the answer? Is debt the answer when you seek to improve your human capital by going to college? What about when you want to buy a house and need to take out a mortgage? A huge number of businesses are started through debt.

Debt is a crucial part of any modern economy. To portray it as a constant evil is nothing short of ridiculous.

Sustainable debt is okay. Unsustainable is not.

Originally Posted by DA60

'Paul Krugman: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.
It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish a great deal.
If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –'

Watch GPS: Krugman calls for space aliens to fix U.S. economy? – Global Public Square - CNN.com Blogs

It should be obvious why this is nuts.

According to him, then the government should start fake cold wars to stimulate economies.

Build trillions of dollars of unused stuff at massive debt cost to get out of a recession.

Nuts.



Sustainable debt is okay. Unsustainable is not.

Wow. It only takes you one post to completely change your argument. You go from debt is never ok to debt is ok only when you can afford it. You go from a complete rejection of reality to captain obvious. Try to consistent.

No one is arguing for unsustainable debt. That's ridiculous. But we're nowhere near unsustainable debt levels. We're borrowing at negative real rates. And we need a massive dose of demand to rescue us from the economy. The rate at which we're currently adding debt is sky high because of the economic slump. So the best way to escape from this massive deficit territory is through pro growth policies, like a demand stimulus. It's really very simple.

As for your ad hominem attacks against Mr. Krugman, they're completely empty. His logic is not that you should build stuff that won't be used. He in fact argues for spending on infrastructure, education, and R&D. His argument is that the right is so incompetent that they will never listen to basic macroeconomics, so putting together a stimulus package of actual useful investments is difficult. He is intentionally facetious when talking about an alien invasion, and all the right wing looney toons fall for the bait.

Originally Posted by NAKED N00B

Wow. It only takes you one post to completely change your argument. You go from debt is never ok to debt is ok only when you can afford it. You go from a complete rejection of reality to captain obvious. Try to consistent.

I see you COMPLETELY missed my point.

Private, sustainable debt is okay...so long as governments never bail them out.

Public/government debt (except during a REAL declared war) is never okay.


I can see debating with you is useless...so I won't.


Have a nice day.

Originally Posted by JP Hochbaum

I am thinking that most everyone here will agree with this.

Why do those at the federal reserve think that making people borrow more, in a balance sheet recession is going to help? Talk about sheer ignorance of their own area of expertise!

It is frustrating.

People are saving, so that they could pay down debt, not so that they can create more debt.

New Economic Perspectives | New Economic Perspectives

Our economy is fueled by consumers who spend more money than they have. If that stops, our economy will grind to a halt.