The Amazingly Twisted Logic of Paul Krugman

March 20, 2009
Paul Krugman: Fiscal aspects of quantitative easing (wonkish)

The Fed is, however, creating a new liability: the monetary base it creates to buy these bonds. In effect, it’s printing $1 trillion of money, and using those funds to buy bonds. Is this inflationary? We hope so! The whole reason for quantitative easing is that normal monetary expansion, printing money to buy short-term debt, has no traction thanks to near-zero rates. Gaining some traction — in effect, having some inflationary effect — is what the policy is all about.

December 28, 2010
Paul Krugman: Nobody Believes in Supply and Demand

The issue of commodity prices is a curious one; I’m getting a lot of correspondence along the lines of, “Well, which is it? Is it too much money printing, or is it greed?” But why does it have to be either of these? Why can’t it just be supply and demand?

Here's a summary of his opinions as seen above.

1. Quantitative easing will create inflation.
2. Quantitative easing does not lead to higher commodity prices.

You'd think that would be enough of a heckle for one day but I'm not even remotely done yet. I refer you to his second link.

But I was and remain skeptical about the speculation story in 2007-2008, because of the lack of evidence of inventory accumulation;

I'm very disappointed that Krugman does not read my blog. Note the inventory accumulation in my extended pantry. I'm probably the only one in the entire world who is doing it though. *sarcasm*

November 2, 2009
8.6% Return on Investment!



There is currently $51.2 billion sitting in GLD. That's just one commodity fund of many. Would that be considered a speculation story? Is each and every investor planning to take delivery of the gold? Perhaps the thinking here is that investors will be creating jewelry for their significant others? If so, investors will be extremely disappointed. GLD has no intention of ever shipping the gold to its individual investors.

...and this time around, the fact that prices are still well below that previous peak suggests that there can’t be all that much funny business involved.

Let's look directly at oil for any signs of funny business.



The circle in red "suggests that there can't be all that much funny business involved"? That's what Krugman claims. He also claims to be skeptical of the 2007-2008 speculation story. What would it take for him not to be skeptical of it? Would a pink elephant dressed in pink slippers screaming "I'm part of the speculation herd!" do it?

The line in blue apparently suggests that there can't be all that much funny business involved either. Oil will continue to double in price roughly every 5 years. How do I know that this trend will continue? Krugman tells me that "nobody believes in supply and demand". If true, everyone will continue to buy oil no matter how high its price goes. Nobody will even cut back. He's got a Nobel prize in economics. Who am I to argue? *sarcasm*

Krugman wants inflation. He claims quantitative easing will give us inflation. He's then surprised that anyone would think oil prices would rise based on quantitative easing? Perhaps he expected all that awesome inflation to magically appear in wages and housing prices instead? How else could anyone possibly explain his twisted logic?

Can't you just picture it. On a Friday afternoon the Fed announces that it WILL create enough monetary printing over the weekend to force up all prices by an average of 10%. Let's say Krugman is your boss. He calls you into his office. He says...

"I know your review isn't for 6 months, but based on what the Fed is doing today I have no choice but to give you a 10% raise immediately. I'm also sending you home early so that you can go to the mall and do a bit of shopping to help this economic recovery. You must promise me that you won't hoard though. The last thing this country needs is a panic at the grocery stores."

Let's all embrace Krugman's utopian dream. Although that is not how the real world works now, it could happen if we all wish hard enough. I'm sure of it!

December 29, 2010
Global Food Prices in 2011 Face Perilous Rise

This has created two side effects. First, investors have bought exposure to commodities as an economic hedge. Second, the price of foodstuffs has been bid up as low interest rates reduce the opportunity cost of hoarding them — especially in China, where the money supply grew almost 20 percent in 2010.

Psst! Don't tell Krugman these crazy economic theories! He'll think you are a nutcase.