Krugman complains G20 is turning into deficit hawks http://krugman.blogs.nytimes.com/2010/06/06/lost-decade-here-we-come/ I disagree with this, first he is not looking at CDS spreads which are going up, the debt is affected by things like deflationary expectations(the real rate on the debt is more important than a nominal rate, specially the future real expected rate) 2nd, if fiscal stimulus can be implemented forever without any regard to a looming sovereign debt crisis, a government could in theory run 10% deficits forever. Of course at some point, markets shutdown and either default or money printing follows(or a bailout) which would cause more pain than economic pain than bringing that deficit back to 3% In order to avoid that point the government needs to anticipate that a crisis could emerge and as a result implement some fiscal cuts, tax hikes and importantly, talk hawkish to give the impression that they are aware of the problem. The G-20 anticipates a crisis, so they are doing that, and correctly in my view given that global CDS spreads do indicate that its time for that The last thing they should do is say 'Interest rates are too low, as a long as that is the case we are going to borrow and spend to stimulate the economy', effectively removing a reason for debt buyers to buy I do agree with him that those measures need to be implemented gradually in order not to plunge the economy but to suggest more fiscal stimulus in the middle of a global sovereign debt crisis in a country as indebted as the US is crazy
I don't know why anyone still listens to Krugman. His Nobel Prize is as worthless as Obama's. Listen to his "wisdom" about 5 years before the housing/credit crisis: "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." - Paul Krugman, Dubyaâs Double Dip, August 2nd, 2002 And compare to: "Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act." - Ron Paul in the House Financial Services Committee, September 10, 2003 End of thread (or should be).
I love those quotes, a great reality check, and illustrates beautifully the difference between how 'real' conservatives view the economy versus activist liberals. Krugman has been banging his drum for higher deficits. He must feel that the Nobel is license for completely unleashing his buffoonery.
I think they like the bubble and consumer spending et all because they know it increases the quantity of debt surfs, which is what the system is basically all about.