Charles Krauthammer: Fiscal Cliff Compromise 'A Complete Rout By The Democrats'

I copied it from another article

 

Ah, well if Krugman said it.

That being said, I have no idea what Jem is talking about either.

 

I read he has other options as well such as citing a national emergency if the government defaults

This is a battle The GOP cant win,they better recognize that

 

The only thing holding back default is the 'printing press". The future ain't pretty for USA, Democrat, Republican, or Libertarian. It has become a house of comedy.

 

And AK47 actually thinks his "team" is "winning".

 

We may be borrowing to keep spending at current levels, but having to borrow to pay our debts is hardly even remotely possible. Our revenues even during the depth of the crisis were still more than five times the cost of debt service. A LOT of spending cuts could (and would) be made long before the debt could not be paid.

 

His team claps furiously at the good fortune of winning a goat on "let's make a deal".

 

Only because the Federal Reserve is artificially keeping down interest rates by buying 85B a month! If they weren't printing money for QE, rates would be considerably higher. It is impossible to say how much higher (and if it is possible, I certainly don't know how to do it) but your revenue vs. cost of debt argument would certainly get a lot more slim!

We're bearing the brunt of this action through devaluing currency.

 

"December 24, 2012, 3:40 pm
The Fed and Interest Rates

"In response to today’s column, I’m getting a lot of the usual: namely, the claim that low interest rates don’t prove anything, because the Fed has been buying up all the federal government’s debt issue. This is always said with an air of great wisdom; in fact, it’s remarkably foolish, managing to be wrong in three distinct ways.

"First of all, it isn’t true that the Fed has consistently been buying a lot of Federal debt issue. Sometimes it has, sometimes it hasn’t; when QE2 stopped, there were widespread predictions that interest rates would spike, but they didn’t — as those of us who have been getting it right predicted.

"Second, the idea is conceptually wrong. Asset prices should be determined mainly by the stocks of assets, not the changes in these stocks over short periods. If bond investors lose confidence in federal debt, there’s a huge outstanding stock of that debt for them to try to sell, driving rates up, no matter how much of the new issue the Fed might be buying.

"But maybe the killer is this: since when do the kinds of people who worry all the time about deficits believe that the Fed can monetize a substantial part of a large deficit, for four whole years, without any negative consequences? If you believed in the framework these people have, all that expansion of the monetary base should have produced runaway inflation by now, as many of them did in fact predict early in the game. It hasn’t — and no, don’t give me the bit about the government hiding the true rate of inflation. Independent estimates are not significantly different from the official gauges.

"Now, back in late 2008, contemplating the situation we were in, those of us who saw it in terms of basic IS-LM macro made a twofold prediction: as long as the economy stayed depressed, interest rates and inflation would both stay subdued despite both large deficits and a huge expansion of the Fed’s balance sheet. There was much scorn for that prediction at the time; how do you think it has looked since?

"I have to say, the persistence of the inflationista, eek! deficits! view despite year after year of failure — and the amazing effort put into making excuses for year after year of failure — are a wonder to behold. But then, the point of today’s column was precisely that this is what happens when true believers confront uncooperative reality."

"December 31, 2012, 11:24 am
On Not Learning, Continued

"Robert Murphy replies to Brad DeLong, and DeLong is not happy — for good reason. But I think there’s also a broader point.

"Brad’s ire reflects Murphy’s apparent belief that his failed inflation forecast is OK because we just so happen to have faced a huge deflationary downdraft that offset the inflationary impact of Fed expansion. As Brad says, if that’s right, we should be hailing Ben Bernanke for preventing a catastrophic deflation, not attacking him for doing too much. Indeed, if you believe that there are lots of shocks of this magnitude, you should be a big supporter of activist monetary policy.

"My broader point, however, involves Murphy’s main argument, which is “Well, some Keynesians got their unemployment predictions wrong, so there.”

"What’s wrong with this line of attack? Two things, actually.

"First, it’s really important to distinguish between fundamental predictions of a model and predictions that an economist happens to make that don’t really come from the model. The prediction that huge increases in the monetary base will cause large increases in the price level, and that big government deficits will cause big increases in interest rates, are more or less inescapable if your model of the economy is one in which recessions are supply-side problems, not the result of inadequate demand. Conversely, the prediction that neither of these things will happen if the economy is in a liquidity trap is a fundamental prediction of Keynesian models. On the other hand, the unfortunate Romer-Bernstein prediction of a fairly rapid bounceback from recession reflected judgements about future private spending that had nothing much to do with Keynesian fundamentals, and therefore sheds no light on whether those fundamentals are correct.

"In short, some predictions matter more than others.

"Beyond that is the question of how you react if your prediction goes badly wrong.

"The fact is that while Keynesians predicting a fast recovery weren’t really relying on their models, the failure of that fast recovery has nonetheless prompted quite a lot of soul-searching and rethinking. It is now standard, in a way that it wasn’t before, to argue that recessions that follow financial crises have a very different time path of recovery from other recessions, and that debt overhang, in particular, poses special problems.

"So Keynesian thinking has evolved in important ways; we’ve learned from our mistakes (where by “our”, as it happens, I don’t exactly mean “my” — I expected a slow recovery all along; but the actual event has nonetheless led me to substantial rethinking). The fundamental concepts of demand-side slumps and the importance of the zero lower bound remain, but there’s a lot of further refinement that changes the way we think.

"Has there been anything comparable on the Austrian/Austerian side? Not that I can see. All I see are excuses — hey, we would have had inflation except for the Europeans, or something. And to return to Brad’s point, there doesn’t even seem to be any consideration of the implications for policy if in fact things like a debt crisis on the other side of the Atlantic can suddenly triple the apparent demand for high-powered money.

"Being willing to learn matters. Unfortunately, that willingness seems absent from many people who consider themselves economic experts."

 

This is because "Operation Twist" was put in place after QE2, and was leaked to the market in July 2011 (and therefore frontrun as the market rushed to buy everything the market knew the Fed would be going after in a month or two). Sure enough, OT began at the end of August, beginning of September.

Ah, so if we follow this "stocks of assets" theory, Krugman can easily explain how oil went to $147 a barrel one month, and just 6 months later collapsed to the price of under $40. Right, did we suddenly find a new planet with oil on it? Asset prices are determined by speculation in a market where money is injected by the trillions into the economy. This is evident by anyone who can pull up a graph of ANY commodity and overlay QE announcements and program integration.

Will answer the rest of your Krugman witchcraft in a few moments. I have a call I have to hop on.