Paul Krugman : Both parties agree that it’s time to slash spending — destroying jobs in the process

[Better Believe It]

Rule by Rentiers
By PAUL KRUGMAN
June 9, 2011

The latest economic data have dashed any hope of a quick end to America’s job drought, which has already gone on so long that the average unemployed American has been out of work for almost 40 weeks. Yet there is no political will to do anything about the situation. Far from being ready to spend more on job creation, both parties agree that it’s time to slash spending — destroying jobs in the process — with the only difference being one of degree.

Nor is the Federal Reserve riding to the rescue. On Tuesday, Ben Bernanke, the Fed chairman, acknowledged the grimness of the economic picture but indicated that he will do nothing about it.

And debt relief for homeowners — which could have done a lot to promote overall economic recovery — has simply dropped off the agenda. The existing program for mortgage relief has been a bust, spending only a tiny fraction of the funds allocated, but there seems to be no interest in revamping and restarting the effort.

While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.

Read the full article at:

http://www.nytimes.com/2011/06/10/opinion/10krugman.html?partner=rssnyt&emc=rss

[pnwmom]

1. This is what should be at the top of the news -- not Weiner.

Thanks for the post.

[customerserviceguy]

3. I blame Weiner for displacing it out of the news

He had his choices to make, and he chose poorly.

[hay rick]

13. He displaced stories about Schwarzenegger, not ...

actual news about what is going on in the economy. Our mass media has long since self-censored itself into irrelevance.

[customerserviceguy]

15. And I can blame Ahhnuld for those

It's always better to be able to blame the other side, rather than simply assert that they're no better than we are.

[newspeak]

45. I'll blame the corporate media

who pick and choose who they want to blather on and on about, while stories exposing high level con jobs on wall street and real criminal activity goes by the wayside. I mean, if the media really was fair and balanced, we could have been seeing not only Clinton's sex expose' 24/7, but probably Poppy's.

Just like they gave all that exposure to the swift boat liars-knowing Kerry's war experience could be used in the election, they needed to cancel it big time--and who were the willing participants? The corporate owned media. You can take a hero or solid serviceman, like Kerry, like McGovern--a true patriot and smash them, while propping up a party hardy never seen the horrors of war, AWOL chickenhawk and five deferment war profiteering chickenhawk who got us into the mess.

With the right PR and a willing media, you can make any con artist look honest and any hero look like a coward. And that's the corporate media's job-make sure the right people get into office to do corporate business-not the people's business, but corporate business.

[customerserviceguy]

49. Good thing the corporate media's shelf life is getting shorter

They're becoming an anachronism, new media is taking over.

[pnwmom]

20. And he's continuing to do so. He should have resigned already.

How much longer?

[customerserviceguy]

31. Sorry

But that's poor wording for this kind of story! :)

[pnwmom]

35. LOL.

Everything seems to turn into a bun when we're taking about Weiner. If you know what I mean . . .

;)

[customerserviceguy]

37. I read the front pages of the NYC tabloids most every day

They've been having a field day with this scandal. I guess I can't help it!

[pnwmom]

39. I bet they're really relishing this Weiner story.

(I can't help myself either.)

[customerserviceguy]

42. Your jokes really cut the mustard! n/t

[neverforget]

36. It's Weiner's fault that the MSM is talking about him and not something

far more important? The MSM has choices to make and they chose poorly.

[customerserviceguy]

38. I guess I expect the MSM to make poorer choices

than Democratic officeholders. I expect elected officials on our side to take notice of the fact that sex scandals are what the MSM goes into an absolute feeding frenzy over, and I further expect them to conduct themselves accordingly.

[newspeak]

46. oh please

if the corporate media didn't have Weiner, they'd find someone else. The whole goal is to have a dog and pony shows so you won't be talking about the economy or how some of our congresscritters and corporate america want to screw you even more.

Nor do I blame Clinton for the 24/7 sex expose' on TV, while behind the scenes congress was passing bills to screw us even more. The repukes spent millions of our money going after Clinton, while passing bills that are having an affect on us now-I remember the woman they threw in prison, because she refused to LIE without any due process.

I have my issues with Clinton, but I refused to watch a moronic three ring circus while repukes were grabbing for even more power, and basically neutering Clinton.

[gkhouston]

43. Don't be foolish. He only displaced some other story-of-distraction.

Or have you forgotten how much time has been spent obsessing on Charlie Sheen's foibles? And why is CNN devoting so much air time to the Casey Anthony trial? It's not really unique or newsworthy, but it fills air time without informing the public. That's the present-day goal of most "news" programs.

[customerserviceguy]

50. Good point

The lamestream media is always looking for a sideshow. It seems like they learned less from Edward R. Murrow than they did from P. T. Barnum.

[rhett o rick]

51. Good grief do you live in a cave? If it wasnt Weiner it would be something else. It will always be

some thing else. But you blame Weiner.

[customerserviceguy]

2. Debt relief for homeowners

was an unworkable idea from the start.

Imagine if we had "stock loss relief" for the people who lost money in the dot-bomb crisis. We'd be subsidizing the people who were looking to make a profit off of an unsustainable bubble, paying for it by taxing people who were smart enough not to pay megabucks for the stock of a company that was unable to make a profit.

Just like the dot-bombs, housing has to find it's proper price level. Doing CPR on the housing market with funny loan restructurings, debt writedowns, and abused tax credits for homebuyers doesn't do anything to help.

[Better Believe It]

4. So why is debt relief for working people bad and why is it "unworkable"?.

[customerserviceguy]

6. It does nothing to fix the problem

If you've got a house you bought for $250K, with a $200K mortgage, that is now worth $150K, you're still $50K underwater, no matter how you slice and dice the payment plan. If you just hand someone $50K to make up for it, or worse yet, $100K to 'make them whole', you've really caused moral hazard.

When someone has a debt that will always (or what may seem like always) be greater than the value of the underlying asset securing it, paying off that debt becomes untenable. Besides, it does nothing to stop the value of houses from plunging as out-of-work people lose their homes to foreclosure.

This is a bubble, and slapping patches on it does nothing to cure the fact that the bubble just got too damned big. When housing hits bottom, whenever that is, others will have the opportunity to own something that they just couldn't possibly afford during the pumping of the bubble.

Markets have winners and losers, and that's no less true of the real estate market than it is of any stock or commodity market.

[dkf]

8. Housing bubbles are the worst because of the leverage involved.

We screamed when we learned the hedged funds were leveraged 39x but how leveraged is a person who put nothing down?

That's way worse than an idiot on margin!

[customerserviceguy]

10. Very true

Too many people watching "Flip this House" and thinking that they absolutely couldn't lose on real estate pumped this bubble. Home equity lines of credit did, as well.

[dkf]

12. How many people didn't see that show?

The problem is that people are financially illiterate. They don't understand leverage, they don't understand risk, they don't understand bubbles, they don't understand mortgages. But even those that did understand still decided to bet the farm because, yes, they decided to speculate.

Speculation has winners and losers and in the housing market we now have many many losers who probably don't even realize they were speculating. But there were winners too. They were the ones who got out and stayed out.

[girl gone mad]

17. Sort of the pot calling the kettle black.

You don't understand financial fraud, monetary theory, basic economics..

[dkf]

19. Whatever.

I understand reality.

[girl gone mad]

22. You've spent months arguing that the banks committed no crimes.

That's not reality.

[dkf]

24. No they did commit crimes, but all the evidence so far is at the lower levels.

We all know there was forgery and fraudulent attestations galore and the paperwork is a mess. But are you going to get the CEOs on that? What can we prove? I've seen some writings from William Black but that doesn't show me how it translate to real charges.

I'm curious as to if the CEOs were ever made aware of the asset level info the rating agencies got. If there is any smoking gun I would think that is the place to start.

I have no problem prosecuting this crap. I have no idea why it wouldn't happen if the evidence exists. If you say complicity by the administration then I have no solution.

[customerserviceguy]

28. The banks were only slightly more greedy

than the realtwhores, commissioned loan reps, and potential homeowners who kept pumping air into this bubble, until gravity finally caught up with them.

[hay rick]

18. Maybe we could call underwater mortgages "troubled assets"...

The significant differences between the banksters and homeowners are the scale of losses and who-do-you-know.

[dkf]

29. They do call them that.

[customerserviceguy]

30. Bailing out the banks

is going to be way cheaper than bailing out Fannie Mae and Freddie Mac, when that day comes. If we're not into a double dip recession, that will surely get us there.

[GoddessOfGuinness]

5. I wish Obama et al would listen to Krugman.

In not doing so, I fear they're dooming us in 2012.

[indepat]

7. RW solutions for RW-created disasters will produce only further RW-disasters

as always. :patriot:

[woo me with science]

9. "The Pain Caucus."

Good word for it.

[QuintanarooBoy]

11. Why the Hell isn't Krugman in the Cabinet?

Timmy Boy needs to go, and PK has been right about EVERYTHING economic for 2+ years now!

[Better Believe It]

14. Because Wall Street doesn't control him?

[st8grad93]

16. "Deficit spending could put the unemployed to work"

The deficit is projected to be $1 Trillion+ for years to come, and yet employment has barely responded.

How much more deficit does he want ? $2 Trillion per year ? 3 ?

At some point the interest on this debt has to be serviced, and there is just not enough economic activity to support the levels to which he is advocating. Raising taxes alone will not provide enough revenue to service the enormous interest payments that Krugman's projected debt would produce.

The only way out of this mess is the path that the President's council recommended - a balance of tax increases and spending cuts.

[girl gone mad]

21. Can you provide an example of a country succeeding on such a course of action?

Under a sovereign currency regime, a government deficit represents a private sector surplus. Shrinking the government's deficit necessitates the reduction of private sector savings. Is this a smart move in the face of high unemployment, a balance sheet recession and massive private sector debt deleveraging?

[Better Believe It]

26. Deficit spending works to create jobs. The United States of America in 1940 -1946

[st8grad93]

33. 1940-46 is nothing like 2009-???

Unless you plan on starting another world war that requires massive amounts of manufactured goods to be made to fight it.

Is that how you want to grow out of this ?

[Better Believe It]

44. We can launch a bold public "Rebuild America" plan of infrastructure and public works projects

Trillions for peaceful reconstruction programs, not war, that would put millions of people to work at living wage jobs.

This nation is falling apart, it needs a modern high-speed national rail transportation system and mass transit systems, alternative non-polluting energy systems, modern public schools, a state of the art health care system available to all, new bridges and roads, high quality public housing, etc.,

Just think of all we can and need to do to rebuild this nation from the ground up.

[andym]

48. The USA grew out of the debt accumulated during WWII during the 50's

not during the war itself (although it grew then as a result of the massive spending).

""

It was good old American economic expansion that did the trick (with high tax rates for the rich leading the way!)
Debt as a proportion of the GDP peaks in 1947 and then decreases as the American economy expands until stagflation during the 70's when it stabilizes. Debt as a proportion of GDP then begins to increase starting with Reagan and his unpaid for tax cuts in the early 80s.

[coalition_unwilling]

23. You do a dis-service to the debate by focusing on a nominal number

("$1 Trillion +") and not on the deficit and debt as a percentage of GDP. By that standard, the annual deficits are historically low during recessions.

Furthermore, increasing the deficit and putting people back to work would have a stimulative effect, yes? Krugman's point is that creditors have a vested interest in seeing the economy depressed as it makes their debt holdings more valuable. Assuming inflation increases with a pickup in economic activity, the increased debt could be serviced with higher tax revenues and higher tax rates. In other words, we would inflate ourselves out of debt. That prescription is, as Krugman notes, anatehema to the rentier (creditor) class. That class' interests are served by deflation, not inflation.

Edited for clarity.

[st8grad93]

34. You do a dis-service to the country by assuming the economy will grow enough

to provide the necessary tax revenue to pay for the massive interest payments that would accompany such debt.

Much of our current debt is financed on a relatively short term, so if inflation kicks in those payments will be even higher as interest rates rise.

The debt is already 100% if GDP, and the deficit is about 10%. Luckily, interest rates are low so interest payments on the debt are relatively low.

[Better Believe It]

27. Those trillions have not been spent for job creation such as massive public works and infrastructure

[StarsInHerHair]

41. your way is already a proven failure in the UK & Greece

[unkachuck]

25. "...dashed any hope of a quick end to America’s job drought..."

....people around here are still waiting for 'boner-jobs' to appear....all we've gotten so far, is the 'boner'

[lovuian]

32. They slash jobs then noone can pay taxes or pay their debts

or pay for healthcare

so you pay them food stamps Medicaid and real estate prices fall to a point no property taxes or assets

this is a WRONG WAY

HIRE JOBS GIVE JOBS JOBS JOBS JOBS

AMERICA needs WORKERS
infrastructure and Solar enerrgy Wind Energy

PUT PEOPLE TO WORK

[StarsInHerHair]

40. the UK is a year AHEAD of the US & economists THERE now realize austerity

is a SCAM, they're saying over there all the cuts to various public sector jobs are digging the UK into a deeper hole.

http://www.newyorker.com/online/blogs/johncassidy/2011/06/uk-economy-returns-to-1930s-imf-applauds.html

..."About a year ago, with the British economy seemingly recovering fairly well from the financial crisis of 2008, David Cameron’s Conservative-Liberal coalition embarked on a vigorous policy of deficit reduction, raising taxes and cutting government spending in an effort to balance the budget by 2015. How this experiment in pre-Keynesian economic policy turns out obviously has important implications for the fiscal debate on this side of the Atlantic"...

[newspeak]

47. yes, such austerity measures

will only put more people out of work--we already have a wealth disparity and yet, they want to give even more to the wealthy who have done more harm than good by sitting on assets or sending it overseas. Trickle on does not work, it has never worked and it's time to change the game!!!

When we talk about security in American, it's time to redefine "security." Security is not only about fighting the bad people, it's about a strong infrastructure, a strong economy and social protections for the people. What's the difference between dying of exposure (no shelter), starving, being killed on a collapsed bridge or a bomb?

Congress needs to start thinking about jobs over the deficit--I'm with Krugman, the deficit will work out.