Why were predictions of devaluation and hyperinflation wrong?

Progressives like Keynesian monetary policy and inflation in general because it’s a stealth tax on the rich, Conservatives oppose it for the same reason.

dollar_greenspanAn acquaintance of mine challenged me to read Paul Krugman’s blog for a few weeks; in exchange he would read Ayn Rand’s Atlas Shrugged. As I like exposing myself to other points of view, I started reading Krugman’s work.

As an objective reader searching for good data and analysis, I appreciate Paul Krugman’s wonkish posts, but his over-the-top partisanship, juvenile name-calling, and extreme arrogance make his writings a turn off to anyone who’s not a partisan Democrat. I find myself selectively skimming past the partisan bullshit searching for kernels of truth.

There’s Something About Money (Implicitly Wonkish)

Paul Krugman, February 10, 2015blinded_by_ignorance_alan_greenspan

Continuing a family tradition, Rand Paul is saying crazy things about the Fed and monetary policy. It’s important to note, however, that he’s not that far out of the modern Republican mainstream. Remember this:

I always go back to, you know, Francisco d’Anconia’s speech, at Bill Taggart’s wedding, on money when I think about monetary policy. Then I go to the 64-page John Galt speech, you know, on the radio at the end, and go back to a lot of other things that she did, to try and make sure that I can check my premises.

Yes, that’s Paul Ryan citing a second-tier character in Atlas Shrugged as the ultimate authority on monetary policy; and we’re not talking about when he was an adolescent, we’re talking about someone who was already a rising Republican star.

print_moneyThis is brilliant partisan political writing. He assassinates the credibility of his opponent without providing any data or analysis that supports an alternate position. It reminds me of the schoolyard taunts from grade school “I don’t shut up, I grow up. What I throw up, you lick up.”

But why the craziness? It goes beyond class interest, I think, although that’s part of it. There’s something about money that promotes crazy thinking, backed with a lot of passion (and anger at anyone who doesn’t go along with the program).

I hope Mr. Krugman paused to look in the mirror after writing that, but I doubt he did, or ever does…. “I am rubber and you are glue / whatever you say bounces off of me and sticks to you.”

Getting past the arrogance and derisive partisanship in Paul Krugman’s work, the kernel of truth I found most enlightening — and disturbing — was the undeniable fact that all the dire predictions of currency devaluation and hyperinflation coming from the political right and Austrian economists (I admire Austrian economists) has proven completely and totally wrong. Even in a field like economics where different factions spin data and interpretation to suit their agenda, there is no way to spin how completely wrong were the warnings on devaluation and hyperinflation.

Whitewashing the Crazy, Fed Edition

Paul Krugman, January 28, 2015Yellen_fed_reflation

How does one report on politics when a significant wing of the political spectrum is, not to put too fine a point on it, stark raving mad?

Do you see what I mean about arrogant partisanship and name calling? It’s difficult to read past crap like that and get to what Krugman really has to say.

I appreciate that it’s hard to do without attracting accusations of bias; on the other hand, there’s a temptation to soft-pedal the crazy, to make it seem as if politicians were less out there than they really are.

This is his opinion, and as an opinionated blogger myself, I support his right to express it, but his writings might be more broadly accepted if he didn’t inject it with his biases presented falsely as both factual and rational — but then again, he probably wouldn’t have such a strong, almost religious devotion among his fans.

Thus, Matt O’Brien notes that Ted Cruz has now joined the “anti-Fed crazy train”, which is exactly right.

Is it really crazy to be against certain policies of the federal reserve?


There are many citizens who find moral failings with some of the federal reserve’s policies such as stealing from seniors to save the banks and providing secret bailouts to banks and hiding the evidence (thus we have calls for more transparency).

Is opposing that crazy? Really?

The report, however — which does, to be fair, convey the full sense of how crazy Rick Perry was — uses a euphemism for what the crazies have been saying:

Republicans have questioned the Fed’s moves to stimulate the economy since the financial crisis, arguing that the expansion of its balance sheet will create economic instability.

Well, actually they have spent the past six years warning about “currency debasement and inflation“. The chart shows how that prediction has turned out.


That chart is devastating to the currency debasement and inflation argument. While the federal reserve was printing money like crazy, creating a $4 trillion+ monetary base, the value of the dollar did not go down, and inflation remained generally below 2%.

federal_reserve_printing_moneyFurther, when the federal reserve stopped printing money (something many have suggested is still going on but hidden from view), the currency began to appreciate rapidly and inflation plummeted. There is no other way to interpret this data other than to conclude printing money offset the deflationary forces that prevailed for the last five years.

Whether or not fighting deflation was desirable is a different debate, but the data clearly shows what happened, and it also shows these deflationary forces are still in effect, otherwise the dollar wouldn’t be appreciating so sharply and inflation wouldn’t be falling so sharply. If anything, the data suggests we should probably still be printing money, assuming battling deflation is a desirable end. It provides further evidence in support of my contention that the federal reserve will not raise rates in 2015.

Fed’s Janet Yellen, in Testimony, Counsels Patience on Interest Rate Increase

By BINYAMIN APPELBAUM FEB. 24, 2015Janet_Yellen_housing_bubble

WASHINGTON — Janet L. Yellen, the Federal Reserve chairwoman, told Congress on Tuesday that the central bank is pleased with recent economic growth but convinced there is room for improvement and still pondering when to start raising interest rates.

Based on the chart showing a strengthening currency and low inflation, what reason would the federal reserve have to raise rates right now? None that I see.

Senator Richard C. Shelby, the Alabama Republican who leads the banking committee, questioned whether the Fed, by continuing to suppress borrowing costs, was blowing bubbles into financial markets and risking higher future inflation.

“Many question whether the Fed can rein in inflation and avoid destabilizing asset prices when the time comes to unwind its massive $4.5 trillion balance sheet,” he said. Patience, he warned, “could lead to a more painful correction down the road.”

I appreciate the concerns about what could happen if the federal reserve keeps the pedal to the metal too long, but there are no signs this is a problem right now, nor are there any signs of a problem brewing.


If anything, more people are concerned we will tip back into recession rather than overstimulate the economy.

Senator Sherrod Brown of Ohio, newly installed as the committee’s ranking Democrat, countered that concerns about inflation were misplaced.

Some pundits and politicians for years have been predicting runaway inflation, but they clearly do not have a very good grasp of what is happening for most Americans,” Mr. Brown said. “Low wage growth has continued for the majority of Americans, and the declining participation in the work force is troubling.”

I can’t disagree with Sherrod Brown — which surprises me because I usually don’t have much I can agree upon with the extremes of either political party, but the data backs his position.

Ms. Yellen said the Fed was trying to balance both concerns.

“We do have an economy that fortunately appears to be recovering, and we have to be forward-looking in setting monetary policy, but I want to assure you that we do want to see that recovery continue,” Ms. Yellen said. She said that policy was very accommodative — and would remain so even as the Fed started to raise rates.

In other words, rates won’t be going up any time soon.


Why Conservatives and Progressives differ on monetary policy

Progressives like Keynesian monetary policy and inflation in general because it’s a stealth tax on the rich — a tax that requires no Congressional vote and is not subject to a Presidential veto. By simply allowing inflation to erode the buying power, money is taken from the wealthy through a devaluation of the purchasing power of their wealth. Obviously, Conservatives disagree with Keynesian monetary policy and abhor inflation for the reasons Progressives embrace it.

Since there is a deep philosophical and political division over the course of monetary policy, Progressives like Paul Krugman tout Keynesian economics as the one true way of viewing the function of an economy, and Conservatives seek out alternate viewpoints, like Austrian economics. Unfortunately, the core of both of these viewpoints on the economy gets distorted for political purposes and the wisdom of each is lost.


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