Is FOMC caving
to pressure from
extremist deficit hawks?
The website of the House Budget Committee’s FY 2013 budget plan calling for massive deficit reduction.
THE NEW YORK TIMES COLUMNIST Prof. Paul Krugman, a faculty member at Princeton University, sent a barbed message to the Federal Reserve Bank’s Board of Governors in his column this morning.
The headline was flawless: Et Tu, Bernanke?
Remember Brutus? And Ceasar!
Krugman wrote: “Lately, Fed officials have been issuing increasingly strong hints that rather than doing more, they want to do less, that they are eager to start “tapering,” returning to normal monetary policy….
“… [M]y guess is that what’s really happening is … Fed officials are, consciously or not, responding to political pressure.”
Rep. Paul Ryan, R-WI, chairman of the House Committee on the Budget.
THE LEADING REPUBLICAN ADVOCATE for more austerity – not less – is Rep. Paul Ryan, R-WI, chairman of the House Committee on the Budget.
Here’s what he says on his web site for the Committee’s FY 2013 Budget resolution. “For years, both political parties have made empty promises to the American people. Unfortunately, the President refuses to take responsibility for avoiding the debt-fueled crisis before us. Instead, his policies have put us on the path to debt and decline.”
Excuse me, Mr. Chairman!
If your policy proposals had been enacted, the U.S. would be in the GREATEST Depression, not just the Great Recession.
John Meynard Keynes, whose theories are widely accepted by both academic economists and political hacks, taught us many years ago that when demand collapses, the government must step in as the consumer of last resort.
We learned that lesson the hard way, in the 1930s.
You would have the Federal Government cut spending drastically.
The cure would kill the patient!
New York Times columnist Paul Krugman has been focusing on this point for years.
JUST LOOK AT WHAT AUSTERITY has done for Europe. Greece is tottering on the verge of collapse. Cyprus has collapsed. Spain and Italy are not far away.
Facing reelection this fall, Germany’s Angela Merkel – and many members of the Bundestag – are too frightened to admit their errors.
Look at the example of Japan, where new Prime Minister Shinzo Abe is using brute force (like replacing the leader of the central bank) to pump huge quantities of new money into the moribund economy. It’s working!
An alarming graph from Rep. Paul Ryan’s Budget Committee web site.
At the website of the Japanese Cabinet Office, one finds the Economy Watchers Survey for May 2013:
It says: “For the reasons mentioned above, the assessment of Economy Watchers indicated in this survey can be summarized as “the economy is recovering.” (emphasis added)
Amplified by the fools at FOX News, the deficit hawks in the U.S. are having way too much influence over economic policy.
Until now, Bernanke and the FOMC have been resisting.
Until last week.
Look what happened to the stock market – and the bond market – as soon as they signaled they were thinking about an end to Quantitative Easing.
The Dow dropped 500 points in two days. It’s down again today.
Krugman noted the sharp rise in interest rates over the past couple of weeks.
“Two months ago the benchmark interest rate on 10-year U.S. government bonds was only 1.7 percent, close to a historic low. Since then the rate has risen to 2.4 percent …” he wrote.
Indeed as Prof. Krugman said, all the Fed has to do is to signal subtly that it thinks it may be flooding the markets with too much money.
The bond ghouls hide under their desks.
The traders’ algorithms go wild.
The stock market may not be the real economy, but it has a huge psychological influence. Perception is reality.