A bizarre complacency

Paul Krugman,  November 24, 2009, 1:24 pm <!– — Updated: 6:58 pm –>

Even as the conventional wisdom seems to have converged on the view that despite the continuing willingness of bond investors to buy US debt at low interest rates, the deficit is terrible, scary, awful — you know we’re in herd behavior mode when phrases like “time bomb” start appearing in news stories — a weird complacency has settled in on the state of the actual economy. We’re recovering, everyone says — no need to do anything more.

Role reversal

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November 22, 2009, 5:49 am Paul Krugman

Many people on Wall Street are now warning that there’s a huge bubble in government debt, that interest rates will spike any day now; it’s a warning that clearly has the Obama administration’s ear. A good sample is this piece from Morgan Stanley, according to which “Our US economics team expects bond yields to rise to 5.5% by the end of 2010 – an increase of 220bp that outstrips the 137bp increase in the fed funds rate expected over the same horizon.”

Btw: what? Almost everyone expects unemployment in late 2010 to remain close to 10%. Why, exactly, would the Fed funds rate rise sharply?

Anyway, I was wondering: it’s my impression that the same people now warning about the alleged Treasury bubble dismissed warnings about the housing bubble. Is this true?

The AIG report

November 18, 2009, 4:21 am

At one level, there’s not much news in the SIGTARP (YHTMAAAIYP) report on the AIG bailout: officials asked bankers to take a haircut, bankers said Ni!, and that was that. But the report has renewed the debate over whether officials could have extracted something. I say yes.

Yes, you can make the legal argument: the TARP isn’t a bankruptcy court, so the Feds had only two choices: let AIG go into bankruptcy, with possibly disastrous consequences, or pay up its contracts in full.

Finance mythbusting, third world edition

from: Paul Krugman’s Blog:

November 9, 2009, 1:44 pm

And another: one assertion I keep hearing in comments is that well, maybe China never got much capital from abroad, so you can’t attribute its takeoff to modern finance, but lots of other fast-growing developing countries did.

To which the answer has to be a question: who are you talking about?

Since the early 1980s there have been three big waves of capital flows to developing countries.

Die Ketchup Ökonomen

Paul Krugman hat einen großen Essay im New York Times Magazine geschrieben: „How Did Economists Get it So Wrong?“, in dem er sich einmal mehr die Phantasien und Illusionen marktfundamentalistischer Wirtschaftswissenschaftler vorknöpft. Mit einer hübschen Metapher illustriert er die selbstreferentiellen Ableitungen, die in der Vodoo-Makroökonomie der Neoklassiker so beliebt sind:

„Aus der Entdeckung, dass zwei Ketschup-Flaschen exakt doppelt soviel kosten wie eine Ketchup-Flasche, ziehen sie den Schluss, dass der Ketchupmarkt ein perfekter, effizienter Markt ist.“

In Anlehnung an ein Wort von Larry Summers nennt er die Anhänger der „Efficient Market Hypothesis“ daher „Ketchup-Ökonomen“.  

Siehe dazu die Artikel bzw. Rezensionen von Robert Misik

Der IMF ist aber aufmüpfig!

In dem eben veröffentlichten Global Financial Stability Report (1. Okt. 2009)besteht der IMF auf seinen Grundaussagen bzgl. CEE Exposure Fristigkeiten der Rückzahlungen, wo sich Österreich schon im April aufregte und sich Strauss-Kahn ja dann bei Pröll (beim Frühstück sagte er zu Strauss-Kahn: „did you have a good travel?“, womit er klar mit Westerwelle konkurrieren kann!) „entschuldigen“ mußte.

Im Okt 2009 GFSR ist die Tabelle nur mehr eingefärbt, aber mit ebenso schlechten Aussagen wie für 2009!

 

Der Text dazu:

Vulnerabilities remain high in many countries in emerging Europe (Table 1.4). Although current account balances have generally improved in emerging markets, reducing overall external financing needs, this has come at the cost of a collapse in imports and severe recessions in many countries. Moreover, estimated external debt refinancing needs in 2010 are still significantly high  relative to foreign reserves in several countries, and dependence on external bank  financing, coupled with a high share of foreign-currency private sector debt, continues to expose the region to risks of exchange rate instability and accelerated retrenchment in cross-border lending.

Paul Krugman’s Identity Crisis

Mises Daily by Benjamin Lee | Posted on 9/25/2009 12:00:00 AM

Anyone who reads Paul Krugman, our latest „Nobel Prize-winning economist,“ knows that Krugman believes inflation is not a threat to the economy at all. He is a regular defender of large fiscal deficits and expansionary monetary policy, claiming that they are the road to salvation from our so-called deflationary spiral. (We’ll ignore the fact that this „deflationary spiral“ involves six straight months of price increases and regular complaints from Mr. Krugman himself about skyrocketing costs in health care.)

In 2009, Krugman stated that „deficits saved the world.“ However, in 2003, when Alan Greenspan and the Bush administration were destroying this country’s balance sheet, Krugman was scared to death about inflation. The rest of this article references several paragraphs from Mr. Krugman’s March 11th, 2003, article, „A Fiscal Train Wreck.“

Reform or Bust

Date: 21-09-2009
 Source: PAUL KRUGMAN

In the grim period that followed Lehman’s failure, it seemed inconceivable that bankers would, just a few months later, be going right back to the practices that brought the world’s financial system to the edge of collapse. At the very least, one might have thought, they would show some restraint for fear of creating a public backlash.

But now that we’ve stepped back a few paces from the brink — thanks, let’s not forget, to immense, taxpayer-financed rescue packages — the financial sector is rapidly returning to business as usual. Even as the rest of the nation continues to suffer from rising unemployment and severe hardship, Wall Street paychecks are heading back to pre-crisis levels. And the industry is deploying its political clout to block even the most minimal reforms.

Those Who Really Saw the Crisis Coming also Know How it Ends

 Joseph Mason | Sep 16, 2009

As we pass the anniversary of the Lehman meltdown, policymakers and the media continue to mark the event with a repetition, yet again, of the question, “why didn’t economists see this coming?” Beyond the mere point – made by many economists in response to Paul Krugman’s recent New York Times Magazine – that there are many different types of economists, a vast minority of which specialize in the combination of financial markets and macroeconomics necessary to make such an observation and even fewer who understood securitization prior to the crisis (a set that excludes Mr. Krugman), is that those few who did see it coming also know how it ends.

Macro situation notes

Aus Paul Krugman’s Blog:

 But I thought I’d add a couple of pictures to illustrate just how big the difference is between the technical end of the recession, which has probably happened, and anything resembling a satisfactory performance.

So first, let’s look at how deep a hole we’re in. Rather than going into the details of output gap calculations (Menzie Chinn at Econbrowser has been doing that very well), let me present the most naive calculation: comparing actual GDP since the recession began with what it would have been if the economy had continued growing at its trend (from 1999 to 2007). It looks like this: