Mainstream Economists’ Monetary InsanitySubmitted by Cyril on Sun, 03/17/2013 - 08:01
By Antal E. Fekete (December 21, 2011)
Paul Krugman’s article in the December 15 issue of The New York Times under the title G.O.P. Monetary Madness takes G.O.P. presidential candidate Dr. Ron Paul to task for his ‘ideological’ stand on money. For excellent reasons, not all of which had to do with fear of a Zimbabwe-style hyperinflation, the Constitution explicitly prohibited manipulation of the dollar such as Bernanke’s threefold increase of the monetary base in three years. Krugman ruefully reports that the ‘hard money doctrine and the paranoia about inflation’ took over the G.O.P. that has, up until now, meekly followed Keynesian precepts about pump priming and turning the stone into bread through pushing interest rates all the way down to zero.
According to Krugman, in spite of the ‘false alarm’ sounded by the Austrian economists over the debasement of the dollar, inflation is still only 1.5 percent. ‘Who could have predicted that so much money printing would cause so little inflation?’ he asks rhetorically. ‘Well, I could, and I did’, he boasts, ‘because I understand Keynesian economics that Mr. Paul reviles.’
In the event, unknown to Krugman, I also predicted the same thing. Unlike Krugman I did more than simply predicting that inflation was not the danger. I warned that Keynesianism would lead to deflation AND depression.
The same thing is happening all over again. When a central bank increases the monetary base three-fold in three years, this is a clear invitation for bond speculators to move in and make a killing. But what the central bank utterly fails to understand is that, contrary to its hopes, new money is not going to the commodity market. Speculative risks there are far too great. Instead, new money is going to the bond market where the fun is. Bond speculation is risk-free. Speculators know which side the bread is buttered. Krugman doesn’t.
Dr. Paul is the conscience not just of the G.O.P., but of the entire nation. Through inflation or through deflation, the mad orgy of money creation that makes mockery of the Constitution will finish the Keynesian agenda of ruining the nation and the world economy. Krugman’s joy over the supposed defeat of Austrian economics is premature. Bernanke’s Fed in blissful ignorance is still putting money in the hands of speculators which they use to place bets on the further fall of interest rates and commodity prices. The day of reckoning comes when falling interest rates destroy capital and, together with it, destroy budding job opportunities. The lethargy of businessmen will continue.
They will not start hiring as long as the interest-rate structure is in falling mode.[...]