Deflation is barely a threat, you have interest rates at near zero, and if you're not referring to core inflation, then the Middle East blowing up and food scarcity in general is pushing prices up and away...the prices that matter most to Americans like oil and food. It is painfully obvious you read Krugman religiously, and therefore consider yourself somewhat of an economic expert. Krugman is a good source, yes, but he represents only one end of the spectrum, and a far end at that. I assume you are going to beat me down with tales of deflationary worries in Japan and etc. next, even while considering that the two situations might be vastly different. You have inflation hawks that worry constantly about that. Krugman is a deflation hawk, and a neo-Keynesian that just loves spending, so of course by now, you're all addled up about that. It's the same as people who say inflation is going to cause the end of the world---except with Krugman it's deflation. Neither case really applies. Excessive inflation and deflation are to be avoided, but at what cost? Certainly not the inefficient one of QE2 for starters. That also applies to your theory of economic growth---Benarnke said that QE2 created 600,000 jobs with God knows what figures. Even at that, that comes out to about $1,000,000 per job. I can also describe other unpleasant effects of QE2, but you've made it abundantly clear you don't really read my posts, so I won't bother. All this...about a million dollars per job, and avoiding the specter of deflation that barely exists, for all that money tacked onto the national debt, and all that money that is now clogging the money supply? Basically, QE2 fails cost/benefit miserably, and is therefore more in line with Wakko's view than with yours.
I disagree that deflation was barely a threat. There were (and still are) HUGE deflationary headwinds that could push us towards a Japanese style deflationary spiral that lasts decades. Their situation was very similar to ours in that they had an overheaded real estate and financial markets (though more than ours were) and went through the same bank funding and interest rate declines to '0' that we did to no avail. You had a banking system filled with zombie banks that weren't dead but weren't alive. Currently you have high unemployment contributing to wage cost deflation, declining housing prices (wealth eroding so less spending) and substantially less credit available combined with a consumer not wanting to spend in an economy whose GDP is 70% consumer consumption. I think QE2 was needed as continued housing deflation is a spiraling destructor of wealth and bank capital. Banks could just as easily start burning through their cash again if the housing values continue to fall and they stop easing the restrictions on mark to market. A rut of deflation on assets will hurt this country and its people so much that its worth the chance of inflation to hopefully be reigned in later.
I'm not sure why he's saying this. It doesn't matter whether the Federal Reserve or Congress stimulate the economy, the Fed will be financing it since Congress is running a deficit. Just goes to show how silly and political our supposedly wise policymakers are.
That's pretty revisionist history. Deflation isn't much of a threat - in part because of the various QE programs. At the time, it was a very, very real threat. The fact that interest rates are near 0 is evidence of that very fear of inflation. And inflation is not blowing up. A few items here and there are, while others are getting cheaper. Oil & gas prices are up, but most food prices are flat for the year. They've had spikes which is all you hear about, but then they tend to come back to earth. Who cares? QE2 wasn't a primarily job creation measure. It's a weird way to measure its success. It's like saying the stimulus was a failure because it didn't get people health care. Please do. What are you talking about here? QE2 doesn't tack money onto the national debt. And where is all this crazy excess money that's clogging the money supply?
I completely messed up that last sentence. "are" should be "were" and "inflation" should be "deflation". Interest rates during the heart of the crisis were dirt cheap - the fact that people were willing to invest at virtually 0% rates for 1-3 yr type treasuries was in part due to fear and the flight to safety, but was also indicative of the fact that people were worried about deflation.
Major, I'll contribute a small tip jar donation in your name to help hook you up with editing if you're down. I respect your civility and posting ability. As to your argument about bond yields, well, seeing as how the world was falling apart at the seams and US treasury bonds are about the only thing sacred in finance, I think you'd be looking more at that rather than deflationary fears. Besides, judging economic predictions based on market trends is about as exact as playing Tarot cards, if the market was actually right about things on a regular basis, Dogs.com would be minting diamond coins right about now, and we wouldn't have had the sub-prime mess in the first place.
To Rocketman---citing deflation as a threat by using the specter of Japan is like citing Zimbabwe or the Wiemar Republic as an cautionary tale about inflation. Both are extremes, and both are not the best example to use for the United States. There are similarities, but the United States and Japan have many differences, chiefly the exporting nature of Japan (which has recently sunk to new lows approaching US levels, but in the 2000s was much higher, about twice that of the United States) vs the consumer engine that drives the United States. Also, culturally, Japanese labor and Japan are weird...no, seriously. That causes a lot of problems with wages. ex: Lastly, we don't even know if QE2 worked effectively to fight deflation, since banks can just keep the excess cash in reserve given a large wave of defaults. Also...evidence suggests that it has been inefficient in the economic growth department. I find it hard to believe that the benefit of possibly avoiding deflation, which in my mind is not such a huge deal or such a huge risk, is worth the cost/risk posed by the additional money printed.
I stopped reading here. Are you arguing against QE2 (Fall 2010) or QE3? Time machine arguments are teh lulz - and another classic Northside maneuver.
I never said anything about the other QE or the slashing of rates. I still have somewhat of a Keynesian side. However, QE2 was like trying to fight a hedgehog with a bazooka, at the point where banks were embarking on QE2, I thought deflation may have been a threat, but it wasn't worth printing that much money over that. Obviously the economic benefit has not really come through either, so you can basically call QE2 inefficient. Which in economics, is a cardinal sin. Also, you might want to be careful about understating oil and gas inflation, yes some of it is due to supply shocks, and I actually think the President is getting a lot of flak for things outside of his control, but presidencies have been won and lost on high oil prices. Actually, HeliBen mentioned it in rebuttal to Congress, so he seems to think it's a pretty vital part of the plan. Of course, this was in rebuttal to Sam's claim of economic recovery. If you wish, I can give you other economic indicators...which are much less pretty than the "600,000 jobs" HeliBen conjures like he conjures money. The American economy actually seems to have slowed down with the advent of QE2, and quite a few indicators are in the red. Asset bubbles. A lot of that cash went to pumping food prices out of the reach of starving Third World citizens. Because, you know, when you give money to the big banks, you know it'll be invested ethically and prudently. Now devaluing the dollar would be quite cool if America were an export-oriented economy...but roh roh. No such chance. America isn't Iceland, where 40% of their economy depends on England buying up trout for fish and chips. For the biggest consumer engine in the world, and the biggest importer, a weak American dollar is a problem, to say the least. With the magic of the fractional reserve system, that money multiplies and multiplies and multiplies. The magic of fiat money...HeliBen wills it, and it exists! He's like the God of the American dollar. "Let there be more American dollars!" and there shall. Money supply clogged. On stupidity too...as I alluded to above... Now, how does this increase the national debt? Well, it doesn't directly. It just means the Fed owns a whole lot of the national debt now, which is unhealthy, to say the least. But it certainly also fosters an attitude where the central bank can stimulate everything with money printed out of thin air, which may just lead to recklessness on the part of politicians who value the currency they can play with at their whim about as much as the central bankers.
I'm arguing against QE2 and certainly against QE3. In case you haven't noticed, quantitative easing only takes place if the central bank has already lowered the interest rate to pretty much its' bare minimum, so I know you have no contention with the second part of my statement. At the time as well, deflationary threats were not as high as people would have you believe. That is my belief, and why I am against QE2. People kept on citing Japan, but there are fundamental differences between America and Japan. You always have a thing about inflation hawks citing Zimbabwae, well this is the same crap. Deflation doesn't necessarily mean we are heading down the Japanese road, just like inflation doesn't mean we are going to Weimar Germany. The two economies are different, and the situation is different as well. Japan is an extreme. Did we really take on so many of these risks just to avoid that? Costs Asset bubbles Speculative high-risk investments Higher oil and food prices thanks in part to these bubbles Indications that cash was not lent out to low-risk but deserving American applicants that would have actually stimulated the economy, but rather on high-risk projects (that tends to happen with a pretty much zero-interest line of credit in the hands of the same people who get millions speculating on starving Third World citizens) Inflationary concerns Increase in the money supply of "conjured" fiat money Devaluation of the currency (a no-no in an import heavy country like America) A dismissive attitude towards printing money to solve problems that will tack on more to the national debt if it is continued by politicians Benefits Economic slowdown? Avoiding Boogeyman Japan deflation spiral?
Why don't you explain why? I'm interested to know why the federal reserve's holding of government debt is "unhealthy, to say the least" - in fact, say the most. I would be happy to read past the first item, provided you don't put something laughable in the first para...a tough one thus far, I must admit. Off topic - but why don't you also explain how you came to be a Rockets fan in Canada? The Rockets fans from Canada who frequent the D&D tend to be a very...interesting..breed, to say the least.
Interesting, so you are saying that Deflation was hardly a threat in 2010? That's quite contrary to what the federal reserve though at the time. DO you have access to other contemporaneous data? I also find it interesting that you are a hardcore-"put goldman in jail" vilifier, yet a hardcore inflation hawk rentier/goldbuggerer at the same time - and from Canada no less. I'm reminded of the phrase "Double, double, toil and trouble" to describe this contradictory brew for some reason.
Did...did you just use the Fed's view of the economy to justify QE2. lolwut. Of course the Fed is going to say that, that's why they did QE2. I'll respond to the rest of your posts a bit later, but I hope no Nigerian princes come to your email. Are you gonna cite them as evidence that their fortunes are legitimate?
lolwut, no I'm using the BLS core inflation stats, also known as PCE, which were near zero or even negative in the first part of 2010 (for the first time since 1982) - this is what the Fed relies on. Do you have an alternative set of economic indicators to rely on?
BTW I was advocating another stimulus. The QE2 was a weak sort of stimulus because the the new economic fundies don't believe in govenrment spending despite the clear historicl example of helping in the last great recession/depression. QE2 not working has little to do with whether a real stimulus would help.
I would be happy to reply to your points, if you stop cherry-picking points from the last paragraph, to nitpick about. That quote you pulled was literally the last thing I said. It's cool if you ignore me, but do not expect me to reply or challenge me if you're going to just haphazardly pull hairs out of nowhere, mmk? As to your second question, I am a basketball player. Not a very good one, but I was briefly a starter on my high school team. Tracy McGrady was always the guy I emulated, and one I still pull a few moves from. When he got traded, I started watching the Rockets, and I liked them. I like Yao too, and I liked the character of the team. I found this forum, and liked it. I post in GARM sometimes...but overwhelmingly I post here now, since GARM tends to become...bad times, quite quickly. Here is bad times too, but on a more intelligent level. Yeah, people are arrogant, snooty, want to distinguish themselves and people disappear on a somewhat-frequent basis. We're the White Pearl Society of Clutchfans (+2000 if you get the reference). Even with T-mac gone and Yao out, I stick by my damn teams. I still believe in the Rockets. Am I a Houston native? Hell no. Do I love basketball? Hell yes. Do I love the Rockets? Hell yes. Will I ever root for the closest team---arch-rival to Montreal and hell-on-earth Toronto Raptors? Hell no.
I could handily suggest non-core inflation with items like food and oil included. Negatives and positives to that. but eh. Suffice it to say, disinflation does not equal deflation. Deflation does not equal Japan. Here, I'm tired of typing... http://www.safehaven.com/article/18191/ten-questions-usa-vs-japan
Oh, my bad. Just read original post, good point. I kinda looked at the title and Sam's arguments and assumed you were for QE2 and QE3. I have some bones to pick about government stimulus at this time, though I am not averse to more focused infrastructure/education/government spending if we can cut military budgets/heighten taxes/end the war on drugs a bit. Of course, at this point, the sad reality a Keynesian has to deal with is that the national debt is in no condition to weather such games anymore. Sadly, the past few years have shot us of a reasonable chance at a standard Keynesian economic recovery (yes, Bush lowering taxes and starting two wars has a lot to do with that), so I'm at the point where at every point of new spending, the national debt has to be considered too. Inefficacy now is economic death. Contrary to what Sam thinks, I am not a goldbug that derides reasonable Keynesian policy-making. I just want everyone to be a lot more careful with it.
