Paul Krugman Effect

[Grinder]

There is an ongoing dispute between him and Gross of PIMCO about who is calling the market correctly.  So far, Krugman is winning. 
http://krugman.blogs.nytimes.com/2011/08/30/who-you-gonna-bet-on-yet-again-somewhat-wonkish/
He's been very good at forecasting the effects of QE, the prospect for bond rates and I think he is on the money about the Euro. 

That's not how it works here. If you agree with someone you just have to find one example of them being right to say that they are really competent and should be listened to, and if you disagree you only need to find one example of them being somewhat wrong to say that they have have no clue and can be ignored.

[1714846317]

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[1714846317]

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[hugolp]

There is an ongoing dispute between him and Gross of PIMCO about who is calling the market correctly.  So far, Krugman is winning.  

http://krugman.blogs.nytimes.com/2011/08/30/who-you-gonna-bet-on-yet-again-somewhat-wonkish/

He's been very good at forecasting the effects of QE, the prospect for bond rates and I think he is on the money about the Euro.

More ridiculous, Krugman's predictions have been horrible. He has been predicting deflation and we have not seen any of it. He claimed at the end of 2010 that the biggest thread was deflation, and three months later prices started to raise.

Krugman is notorious by claiming a lot of things and only bring back the ones he randomly gets right. His biggest and most important calls during this crisis have been backwards.

EDIT: And btw, he was not the only one claiming there would be investors going back to treasuries after the fed got out by ending QE.

[netrin]

More ridiculous, Krugman's predictions have been horrible. He has been predicting deflation and we have not seen any of it. He claimed at the end of 2010 that the biggest thread was deflation, and three months later prices started to raise.

I'm no nobel prize winning economist, but is it not possible that 2008 brought such massive deflationary pressure, contraction of M3, that the various bailouts and quantitative easing brought us relative stability? The Fed began in December 2008 to purchase and hold $2.1 trillion of bank debt, MBS, and UST through June 2010. The Fed announced QE2 in November 2010.

Inflation	J	F	M	A	M	J	J	A	S	O	N	D
2008	4.3	4.0	4.0	3.9	4.2	5.0	5.6	5.4	4.9	3.7	1.1	0.1
2009	0.0	0.2	-0.4	-0.7	-1.3	-1.4	-2.1	-1.5	-1.3	-0.2	1.8	2.7
2010	2.6	2.1	2.3	2.2	2.0	1.1	1.2	1.1	1.1	1.2	1.1	1.5
2011	1.6	2.1	2.7	3.2	3.6	3.6	3.6

Granted, opinions vary greatly on the CPI, but given the numbers above, I'd have to say QE2 brought inflation if not employment and QE3 won't happen this year. Perhaps Krugman would have been right if the Fed hadn't printed 20% of US GDP.

[hugolp]

More ridiculous, Krugman's predictions have been horrible. He has been predicting deflation and we have not seen any of it. He claimed at the end of 2010 that the biggest thread was deflation, and three months later prices started to raise.

I'm no nobel prize winning economist, but is it not possible that 2008 brought such massive deflationary pressure, contraction of M3, that the various bailouts and quantitative easing brought us relative stability? The Fed began in December 2008 to purchase and hold $2.1 trillion of bank debt, MBS, and UST through June 2010. The Fed announced QE2 in November 2010.

Inflation	J	F	M	A	M	J	J	A	S	O	N	D
2008	4.3	4.0	4.0	3.9	4.2	5.0	5.6	5.4	4.9	3.7	1.1	0.1
2009	0.0	0.2	-0.4	-0.7	-1.3	-1.4	-2.1	-1.5	-1.3	-0.2	1.8	2.7
2010	2.6	2.1	2.3	2.2	2.0	1.1	1.2	1.1	1.1	1.2	1.1	1.5
2011	1.6	2.1	2.7	3.2	3.6	3.6	3.6

Granted, opinions vary greatly on the CPI, but given the numbers above, I'd have to say QE2 brought inflation if not employment and QE3 won't happen this year. Perhaps Krugman would have been right if the Fed hadn't printed 20% of US GDP.

If by stability you mean that QE avoided the re-structuration of the economy and prolonged the crisis, then yes. It did that.

Also keep in mind that Krugman is of the opinion that the Fed and the government have done too little. For Kruggy the Fed has been tame and the increase of government spending not enough. Therefore I hardly see how he could have been surprised by the government doing too much.

And I specifically mentioned his prediction of final 2010 that deflation was the big danger. Nothing notorious has changed in monetary policy since then, and Krugman has been utterly wrong. This mistake is so big that he has done something he rarely does, admit a mistake. But he has done it by saying that his adversaries were also wrong becuase they said that M0 or M1 (cant remember which one) was the driver of price inflation. Problem is this is a lie. Everybody I read says that M0 and M1 are just the first stages of monetary inflation and that M2 and M3 are more closely correlated to the CPI.

If you try to make sense of what Krugman says you are going to end un with a headache becuase his blog is just a political platform. Some of his early books are worth reading. Not his blog.

[netrin]

If by stability you mean that QE avoided the re-structuration of the economy and prolonged the crisis, then yes. It did that.

I don't deny that central banks are putting out a fire with blowtorches. I'm just pointing out the 2009 was deflationary at least according to the Fed's own CPI and that QE1 most likely did reflate prices, likewise with 2010 and QE2 to the 2008 average.

Also keep in mind that Krugman is of the opinion that the Fed and the government have done too little.

I was not aware of that. Is/was that his opinion before or after QE2?

And I specifically mentioned his prediction of final 2010 that deflation was the big danger. Nothing notorious has changed in monetary policy since then, and Krugman has been utterly wrong. This mistake is so big that he has done something he rarely does, admit a mistake. But he has done it by saying that his adversaries were also wrong becuase they said that M0 or M1 (cant remember which one) was the driver of price inflation. Problem is this is a lie. Everybody I read says that M0 and M1 are just the first stages of monetary inflation and that M2 and M3 are more closely correlated to the CPI.

I'd like to read his admission, if you have a link. I agree that base money and M1 have very little to do with inflation directly. Those aggregates can be multiplied through weaker money (M2, M3) but thus far, most of it is just sitting in Fed reserves doing nothing but backing the collapsing credit. A bank is required by law to hold a 10% fraction of M1 from which it lends out (creates M2) money for business, housing, etc. When people start paying off their mortgages, defaulting, bankruptcy, etc, M2 evaporates. The central banks (Fed) are generating more M1 and giving it to banks at 0% interest in the hope that banks through lending will then reinflate M2, but it's not working. So in addition to giving base money away for free, the Fed is buying government bonds and devaluing the currency, driving real price inflation up (food and energy) while the bogus consumer price index (housing, transportation, gadgets) is theoretically going down.

[hashman]

Good point.  Looks to me like he didn't spend 20 seconds to even read the wikipedia article about bitcoins.  The most directly false statement was:

Actually Krugman usually does his homework and then plays dumb when he wants to mislead. did you see the metadescription for the article?  "Digital, but still a barbarous relic."

He hates the idea of bitcoin, just as he hates gold and all and any currency competition. Without money monopoly he and his keynesian buddies are nothing.

Hmm, yes you might be right about this but I still don't get the angle.  If he really disliked bitcoin then why bring all the press to it with the article in the NYT?  It didn't come across to me as entirely negative..   Most likely I don't see all the politics involved      

[MoonShadow]

If by stability you mean that QE avoided the re-structuration of the economy and prolonged the crisis, then yes. It did that.

I don't deny that central banks are putting out a fire with blowtorches. I'm just pointing out the 2009 was deflationary at least according to the Fed's own CPI and that QE1 most likely did reflate prices, likewise with 2010 and QE2 to the 2008 average.

There is the key piece of data right there.  The Fed's own statistics confirm that the Fed was doing the right thing!  Ever consider the possibility that those stats are intentionally manipulated to make the government/federal reserve look like they know what they are doing?  If the CPI were calculated in the same manner that it was in 1970's, the CPI would be over 6% right now and would never have shown a negative number.  But it's not calculated the same way.  M1 isn't even reported anymore, and has to be guessed.  Shadowstats.com, which does have it's own biases and issues I admit up front, does a much better job producing metrics that compare to those that we used to use.  For example, if we were still using the unemployment metrics that we still use in history books for the Great Depression, U6 would be the closest number to that metric.  Last I checked, U6 was over 16%; and that is even with the lowest participation rate in the recorded history of the US labor force.

[Jixtreme]

Hmm, yes you might be right about this but I still don't get the angle.  If he really disliked bitcoin then why bring all the press to it with the article in the NYT?  It didn't come across to me as entirely negative..   Most likely I don't see all the politics involved      

People who find themselves important often will denounce things, thinking people will simply follow their all-important guidance. Unfortunately for them, some people still think for themselves.

I cheer every time a Chuck Schumer or Paul Krugman denounces something I endorse. It usually means I am endorsing the right thing.

-Jix

[netrin]

Ever consider the possibility that those stats are intentionally manipulated to make the government/federal reserve look like they know what they are doing?  If the CPI were calculated in the same manner that it was in 1970's, the CPI would be over 6% right now and would never have shown a negative number.  But it's not calculated the same way.  M1 isn't even reported anymore, and has to be guessed.

Yes, I am quite aware of that, and made several allusions to that point in my previous two posts, including the SGS chart comparing Fed CPI with SGS traditional calculation. The new CPI specifically eliminates food and energy because these are considered too volatile to be meaningful. Never mind the fact that monetary volatility drives commodity price volatility: Oil, food, and gold are stable relative to each other, but not paper. Furthermore, since government obligations are adjusted according to the new CPI, it is to the creditors advantage to suppress CPI, including government salaries, Social Security beneficiaries, veterans, and food stamps, to name a few.

It is M3 that is no longer reported by the Fed.

[hugolp]

I don't deny that central banks are putting out a fire with blowtorches. I'm just pointing out the 2009 was deflationary at least according to the Fed's own CPI and that QE1 most likely did reflate prices, likewise with 2010 and QE2 to the 2008 average.

And I agree that it would have been even more deflationary without the cental bank actions. The point I was trying to make is thats exactly what the economy needed. Also, the central banks have always avoided deflation, so it was not that hard to predict that they would avoid deflation this time around again.

I was not aware of that. Is/was that his opinion before or after QE2?

Before and after QE2.

I'd like to read his admission, if you have a link.

I cant find the link but it was in response to this one: http://krugman.blogs.nytimes.com/2011/06/14/the-power-of-minus/ Read the comments, its hilarious.

I agree that base money and M1 have very little to do with inflation directly. Those aggregates can be multiplied through weaker money (M2, M3) but thus far, most of it is just sitting in Fed reserves doing nothing but backing the collapsing credit. A bank is required by law to hold a 10% fraction of M1 from which it lends out (creates M2) money for business, housing, etc. When people start paying off their mortgages, defaulting, bankruptcy, etc, M2 evaporates. The central banks (Fed) are generating more M1 and giving it to banks at 0% interest in the hope that banks through lending will then reinflate M2, but it's not working. So in addition to giving base money away for free, the Fed is buying government bonds and devaluing the currency, driving real price inflation up (food and energy) while the bogus consumer price index (housing, transportation, gadgets) is theoretically going down.

Exactly.

Just one thing, the banks are not required to have a 10% in reserves any more. Now its variable depending on the assets they have and in practice is way lower than 10%.

[netrin]

Coming back to OP, whether Krugman is wrong or right, he has a large readership who may and often do not agree with him. Furthermore, Krugman has stated that bitcoin has been a good investment but bad for trade. All together, Krugman has done bitcoin exchanges a favor and the merchants will follow. Gentlemen, bitcoin is going mainstream!

[payb.tc]

Gentlemen, bitcoin is going mainstream!

in america.

barely a peep out of aussie journos yet in comparison.

[netrin]

Just low on the sigmoid curve...



In the trough of disillusionment...

[hashman]

Good point.  Looks to me like he didn't spend 20 seconds to even read the wikipedia article about bitcoins.  The most directly false statement was:

It's more correct to call it fixed than variable, even though the total number of bitcoins hasn't been trickled out yet. Yes, it's possible to nitpick on this, but only if you're desperatly looking for something so you can write him off as a moron you don't need to listen to.

I don't feel so desperate to nitpick, sorry if it came across like that.  New bitcoins are now being printed (issued really) at 50 every 10 minutes.  A quick read through his article might lead people to believe that no new bitcoins are issued.  In my mind that's an important difference and one that should be checked before going in the NYT.  If it were my article I would feel the need to publish an erratum.  However, I do agree with zby and netrin..  these are technical details and people will know to take them with a grain of salt from economists.  And you are right: the monetary inflation (of BTC) is fixed not variable.    


  

[julz]

And now the bitcoin haters on slashdot are on to it: http://news.slashdot.org/story/11/09/08/2134242/Krugman-On-Bitcoin-and-the-Gold-Standard

[netrin]

And now the bitcoin haters on slashdot are on to it

Speaking of slashdot morons, why is it so common to confuse Greenland with Iceland? http://science.slashdot.org/story/11/09/08/200205/Icelandic-Rocks-Suggest-Meteorites-Brought-Gold-To-Earth (4 B year old Isua is a hike away from here)

[osmosis]

http://www.libertariannews.org/2011/09/08/krugman-inception/

[Nagle]

Krugman must have written that article before the price started to collapse.

[molecular]

my comment actually did make it in after all: http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/?permid=33#comment33

Nice to see the censoring is not as bad or even non-existant.

[TheMalon]

Agree. Reminds me of Schumer.

He basically said Bitcoin is digital gold and a good investment.

LOL
Thinking of Bitcoin as an investment is as stupid as thinking of dust as an investment.
Read this article: http://www.technologyreview.com/computing/38392/ ... the guy doesn't make any "predictions" he only analyze the current situation.