Different Perspectives

The rich see the world differently from the poor. The rich are keen to keep their money, power, and status. So they constantly yammer about "inflationary threat" because they want to keep the cost of money high so they can make their big financial profits.

The poor want the economy to grow to give them a little space to squeeze out a living in the corners that life makes available to them. They have no power so they depend on "the system" to give them a little space to survive.

But right now the powerful are only thinking of themselves. So they are clogging up the media with cries of "too much debt" and the need to "raise interest rates" to ensure that inflation doesn't go wild.

Here's a reality check by Paul Krugman from his NY Times blog:

No exit

The latest Fed minutes, together with the forecast, are out. What do they tell us?

Well, the Fed expects unemployment to come down only very gradually — over 9 percent at the end of 2010, over 8 percent at the end of 2011, around 7 percent at the end of 2012. Inflation, meanwhile is expected to remain consistently below the Fed’s target.

Which raises the question, why is anyone talking about an “exit strategy”? On the Fed’s own forecasts, the economy will remain seriously depressed three years from now.

If we apply the Rudebusch version of the Taylor rule to the mean Fed forecasts, I get the following for what the Fed funds rate should be:

End 2009: -6.3%
End 2010: -5.4%
End 2011: -3.3%
End 2012: -0.6%

Yep: three years from now, we’re still in a liquidity trap, with no reason to raise rates above zero and a continuing need for quantitative easing and fiscal expansion.

As far as I can tell, what’s going on in monetary policy debate is a policy in search of a justification. Many central bankers just hate, absolutely hate, being in the position of being so accommodating; yet economic analysis offers no justification for tightening. So they’re inventing new policy doctrines on the fly to justify doing what they want to do.

It’s a familiar story: see Japan’s premature exit from the ZIRP in 2000, and also see 1937 — which was a monetary as well as fiscal bungle.

The truth is that policy should be piling on, not looking for the exit. But central bankers can’t wait to pull away the punchbowl, even though the party hasn’t started, and shows no signs of starting for years to come.

Krugman's point should be shouted from the rooftops. The economy is in a depression (caused by the mad greed of the bankers). Wall Street gambled, the big shots got to keep their money thanks to the taxpayers, but now Main Street is in distress. But rather than give the little guy a break, the big shots are demanding "tight money" to keep inflation at bay.

But as Krugman points out, there will be not even the slightest hint of inflation for at least 3 more years as the economy stays stuck in a serious recession. Then, and only then, does it make sense to call for tighter monetary policy and the withdrawal of fiscal stimulus. Anybody going contrary this want to drive the truck of greed in reverse to flatten the little guy a second time.

Wall Street flattened him in the Fall of 2008 when their risk-laden bubble burst. Now politicians in the pay of the powerful want to back that truck up and re-flatten the little guy by denying him an economy that will create jobs and grow the economy. Tragic. A mistake compounded by more mistakes. And of course all of this at the expense of the little guy, the taxpayer.

I blame Obama for allowing himself to become the tool of the Rich. He ran as a "people's President" but he is in fact a Wall Street banker President.

Now... for a little zest... Here's Paul Krugman's "the real meaning of Thanksgiving". This is good. A touch over the top, but all in good sport, eh?