Monday, April 18, 2011

Paul Krugman: How Dare Those Idiots at S&P Downgrade Their Outlook on U.S. Debt -- Don't They Know I Won a Nobel Prize?

For a guy who purports to be an economist, Paul Krugman seems far better suited to the role of propagandist. After markets were roiled today when Standard & Poor's shifted its outlook on U.S. debt to "Negative", Krugman reacted with haste and his usual attention to, uhm, detail.

You see, Krugman's a proponent of even more deficit spending and unchecked, centralized government. As such, he treats the very rational reactions to U.S. deficit spending by rating agencies as personal affronts.

OK, so Standard and Poors [sic] has warned that it might downgrade the US one of these days. At first read, what it says doesn’t seem too silly: it lays stress, rightly, on political gridlock. The point should be that the US is perfectly capable both of running large deficits now and getting its fiscal house in order over time; but not if the parties cannot agree on any kind of solution. What we do to spending this year or next is irrelevant.

That said, it’s worth remembering that S&P downgraded Japan in 2002 — and here’s what happened:

Japanese bonds became known as the “trade of death”, because people kept betting on an interest rate rise, and it kept not happening.

So, no big deal.

No big deal.

Dimwit (or propagandist) that he is, Olberkrugmann omits four salient details as context:

• Japan has a huge domestic market for its bonds as its citizens routinely convert savings into government bonds for patriotic reasons, not necessarily because they're sound investments.

• The Obama deficit spending is far worse than we've generally been led to believe: "The bottom line, and probably the main reason for the implicit S&P downgrade of the US, is that comparison [of] the President's budget to the CBO baseline indicates that deficits are expected to rise by 41% over the next 10 years: the CBO projects a deficit of $6.7 trillion while the President's number is $9.5 trillion, a 41% increase or $2.7 trillion." Oops.

• There's a sovereign debt crisis unfolding as we speak with the Greek 2-year bond yield passing 20 freaking percent today.

• And true inflation -- not the bogus "CPI" number -- is running wild with oil, gold, silver, and many food commodities all spiking.

This kind of note from Krugman reminds us why he omits his most important experience from his bio: serving as economic adviser to Enron.


Anonymous said...

BTW, the Japanese central bank has been on perpetual Quantitative Ease as well. The fat lady is singing.

TickedMD said...

Krug is a hack

Anonymous said...

The headline I would like to see is this: “S&P execs face major fraud investigation, take the Fifth before federal grand jury.”

News coverage on S&P’s credit warning typically failed to mention that Standard & Poor’s itself is in utter disrepute. It was an unindicted co-conspirator in the Wall Street deceitfulness that brought the nation to financial ruin. During the bubble of inflated housing prices, S&P and other rating agencies blessed the fraud-based mortgage securities issued by Wall Street banks with AAA ratings – deceiving gullible investors around the world and assuring bloated profits (and executive bonuses) for the greedy bankers. S&P provided cover for the massive scam that led to the crisis that sank the national economy.

Anonymous said...

Obama won a Nobel, too. What the hell has that gotten us?
Another day older and deeper in debt!

Dave Lucas said...

...and to think the GOP can't find a candidate that's "presidential material" ... and by the way, I'll betcha Hillary is soooo glad right now she DIDN'T win the nomination!

Anonymous said...

There's a reason Japanese interest rates didn't skyrocket - Japanese savers hold most of their national debt through the Japanese Postal System Savings program.

This is not true of U.S. Federal debt. Not only is a lot of Federal U.S. debt held by foreigners, but much of it is held by various institutions that have no emotional commitment or allegiance to it like a Japanese retail saver might have to his savings through the postal system.