Paul Krugman's column on The New York Times.

Discussion in 'Economics' started by SouthAmerica, Jun 3, 2009.

  1. The article ignores the fact that the real estate bubble and consumer debt of recent times was caused by decades of low interest rates.

    Why would consumers (or governments for that matter) NOT borrow heavily when interest rates are set ridiculously low?

    Blame the fed...
    #11     Jun 3, 2009
  2. Arnie



    Its ridiculous to try to "blame" one person or group for the this.

    To say RR caused the housing crisis is as ridiculous as saying Barney Frank caused it. Keep one very important fact in mind. None of what Wall Street or Congress or Presidents did was in a vacuum. They didn't just wake and decide to make the policy and changes they did. It was in response to the market.

    I think one of the greatest factors in this whole mess is the change in peoples attitude toward debt. I remember when people would have "Mortgage Burning" parties when they paid off their house. Don't hear about those much anymore, uh?
    #12     Jun 3, 2009
  3. Daal


    Kruggie is pulling a trick out of the Soros book. Lay the blame in certain political people that are in the way of you getting your political agenda moving forward.

    Soros kills the market and is multi-billionarie, he clearly is no fool, yet he wants to lay the blame of the credit bubble on Reagan and Tatcher, both conservatives which is a group that usually battles against his agenda, coincidence?

    Consider the fact the the global benchmark for risk free interest rates(that is, the 10 year US treasury note) went from the midish teens all the day down to a 3 handle in 2003. Inflation was also in a multi-decade decline. Almost every country in the world had inflation rates in the single digits early in this decade, central banks learned their from their mistakes and commodities were in a secular bear. We had a multi decade decline in nominal/real interest rates, inflation premiums and inflation expectations. Its not a surprise to see that credit debt as a % of GDP soared, that is the kind of enviroment lending is expected to increase

    Yet a few folks try to point out certain policy decisions as a cause for the global credit and real estate boom. There is no doubt the Reagan screwed up many times, but the root cause of this crisis lies on human nature, in particular how it reacts to long periods of stability and low real interest rates
    #13     Jun 3, 2009
  4. Two great posts in this thread Arnie. I was raised poor by a Mom that lived through the depression. My home is F&C - I took loads of crap for that too & for selling my investment real estate b/w 2004-2007... Some buddys even laughed.

    Blaming some dead guy is almost as bad as the asshats that caused this shit storm now saying "Whocuddanode?" The one thing I will allow is that this downturn has been fierce.
    #14     Jun 3, 2009
  5. Mav88


    The question is have americans learned anything and where do we go from here?

    Let's see, the current attitude is that too much debt was bad so let's go far deeper in debt to fix it. Does that sound like a long term answer? Seems like a desperate ploy to recapture the 'good ol' days'

    Krugman himself advocated a much larger deficit for stimulus and criticized Obama for that, it's hard to take the guy seriously criticizing a debt bubble.
    #15     Jun 3, 2009
  6. Back in the seventies and early eighties, Krugman, his mentor Paul Samuelson, and other very well known left wing "economists", they all rooted for the USSR. They used to say Russia was number 1, that the US should follow Russia's economic policies... blah blah blah yada yada.
    Check out Samuelson & Nordhaus' textbooks not so subliminal communist propaganda.
    Then, Ronald Reagan came and defeated the mighty USSR. The USA became the #1 superpower in the world. Communism spectacularly failed around the world. He made all socialists/communists and traitors rooting for the enemy look like world class idiots.
    That's why Krugman, Samuelson and their clique passionately despise Reagan.
    The world has had 20 years of peace and prosperity thanks to him, but these weasels still cannot forget their shameful defeat and they insist on promoting and establishing socialism in the US and elsewhere. And of course they do not miss any chance of dishonoring Reagan's memory.
    #16     Jun 3, 2009
  7. .

    June 3, 2009

    SouthAmerica: Reply to PraqmaticIdeals

    You said: “Blame the fed...”

    Here is a piece that I posted on the comments section of the Financial Times (UK) about 4 years ago.


    “Alan Greenspan a legacy of debt during his 18 year watch”
    by Ricardo C. Amaral - 28 Aug 2005 07:04 AM .

    Greenspan became Fed chairman in August 1987 at the time the cumulative US public debt was $ 2.4 trillion dollars as of 9/30/1987.

    During Alan Greenspan watch at the Fed the cumulative US government debt reached $ 7.9 trillion dollars on 8/24/2005. The US Total Public Outstanding Debt increased by 330 percent.

    Here is the actual Historical Data for Interest Expense Paid on US Outstanding Debt - Fiscal Year Ending 9/30 of each year.

    YEAR - Amount of Interest Paid

    2005 - $ 314,909,670,536.68*
    2004 - $321,566,323,971.29
    2003 - $318,148,529,151.51
    2002 - $332,536,958,599.42
    2001 - $359,507,635,242.41
    2000 - $361,997,734,302.36
    1999 - $353,511,471,722.87
    1998 - $363,823,722,920.26
    1997 - $355,795,834,214.66
    1996 - $343,955,076,695.15
    1995 - $332,413,555,030.62
    1994 - $296,277,764,246.26
    1993 - $292,502,219,484.25
    1992 - $292,361,073,070.74
    1991 - $286,021,921,181.04
    1990 - $264,852,544,615.90
    1989 - $240,863,231,535.71
    1988 - $214,145,028,847.73

    *Note: includes only 10 months of interest expense for year 2005.
    All the above figures are actual US dollars paid each year in interest by the US government on US government outstanding debt.

    During the 18 years that Alan Greenspan has been Fed Chairman (August 30, 1987 – July 30, 2005) the US government paid out $ 5. 8 trillion dollars in interest expense on its - humongous, extremely large, enormous, huge, monstrous, and tremendous – US Government Outstanding Public Debt.

    Source: US Department of the Treasury – Bureau of the Public Debt
    And US Department of Commerce - BEA – Bureau of Economic Analysis

    The cumulative US national debts were only $ 930 billion dollars as of December 31, 1980 - right before Ronald Reagan became president of the United States. Here is the detail of the additions to the US national debt by president:

    Ronald Reagan (8 years in office) added to US debt $ 1.7 trillion dollars.
    George Bush Senior (4 years in office) added to US debt $ 1.5 trillion dollars.
    Bill Clinton (8 years in office) added to US debt $ 1.6 trillion dollars.
    George Bush Junior (first term, 4 years in office) added to US debt $ 1.8 trillion dollars.
    George Bush Junior (second term, 1 year in office) added to US debt about $ 500 billion dollars.

    Since December 31, 1980 the Republican presidents added $ 5.5 trillion dollars to the cumulative US national debt, and the Democratic president added $ 1.6 trillion dollars.

    The Republican administrations added 77 percent of the new US national debt since December of 1980, and the Democratic administration added only 23 percent of the new debt. Since December 31, 1980 the United States had only one fiscally responsible president - former president Bill Clinton - a democrat.

    Note (1): During Alan Greenspan watch – in the last 4 years - George W. Bush started two wars (Iraq and Afghanistan) and at the same time the US government approved large tax cuts – moving the country from a position of government budget surpluses to a position of massive government budget deficits.

    Note (2): According to Federal Reserve data as of September 2004 the cumulative outstanding debt of the states were $ 2 trillion dollars.

    When we add the federal, state and county government outstanding debt – then we have over $ 10 trillion dollars of current outstanding debt.

    On top of that there is another $ 70 trillion dollars in outstanding liabilities related to government Pensions, Social Security, Medicare, Medicaid, and other entitlements.

    If we add on top of that other US government guaranties such as private pension system, and all kinds of other US government guaranties – then just “God” knows the trillions of current potential liabilities that can end up some day on the US governments lap.

    When we compare this level of liabilities on the balance sheet of the US government with companies such as Enron, and WorldCom before they went out of business – then we realized that these two companies were very well managed when compared with the current financial position of the US government.

    In my opinion Paul Volcker was an outstanding Fed Chairman and he did a great job. Regarding Alan Greenspan, only time will tell the entire story, and he is too old to see the real results of his performance as Fed Chairman.


    August 28, 2005

    Compare the above information with the following: - Two years ago when Lula became president of Brazil – the cumulative debt of the Brazilian government was $ 250 billion dollars. Since then the Lula government were able to reduce the cumulative debt of the Brazilian government to $ 180 billion dollars. The Brazilian government has reduced the cumulative outstanding debt of the Brazilian government by 25 percent.

    Today, the United States government cumulative outstanding debt is so - humongous, extremely large, enormous, huge, monstrous, and tremendous – that the interest that the US has to pay every year on the US outstanding debt is almost twice than the total cumulative outstanding current debt of the Brazilian government. (current cumulative debt of the Brazilian government estimated at $ 180 billion dollars compared with interest paid by the US government of $ 360 billion dollars for fiscal year ending September 30, 2005).

    #17     Jun 3, 2009
  8. .

    June 3, 2009

    SouthAmerica: Now talking about major catastrophes and massive financial mismanagement by a country here is one for you - if you want to cry:

    Note: About 70 percent of the U.S. annual budget deficits are financed by foreigners’ money including from China.

    These are the latest actual figures for the last 8 years.


    “8-year Bush administration Actual Budget Figures”

    It is a very sad state of affairs - Living on borrowed money from foreigners and at the same time thinking that they are very wealthy.

    Since George W. Bush became president on January 20, 2001 the US government added to its outstanding debt $ 5 trillion dollars.

    It is no coincidence, but as you can see by the enclosed actual figures the total adjusted amount of US defense spending during the 8-years of the Bush administration was over US$ 4 trillion dollar.

    My question is: for how many more years do you think foreigners are going to continue funding the defense spending of the United States?

    Never mind foreigners funding American military adventures around the world – who is going to fund all the trillions and trillions of dollars of US domestic expenses that are coming due?


    As of Date - US Government Total Public Debt Outstanding

    05/07/2009 $11,256,266,640,050.20
    01/16/2009 $10,628,881,485,510.23
    09/30/2008 $10,024,724,896,912.49
    09/28/2007 $9,007,653,372,262.48
    09/30/2006 $8,506,973,899,215.23
    09/30/2005 $7,932,709,661,723.50
    09/30/2004 $7,379,052,696,330.32
    09/30/2003 $6,783,231,062,743.62
    09/30/2002 $6,228,235,965,597.16
    09/30/2001 $5,807,463,412,200.06
    01/19/2001 $5,727,776,738,304.64

    Total public debt outstanding on 01/19/2001 was $5,727,776,738,304.64 and since George W. Bush became president on January 20, 2001 the US government added to its outstanding debt $ 5 trillion dollars.


    Year - Interest expense paid by US government on its outstanding debt

    2009 $193,437,580,154.01 (Interest Expense Fiscal Year 2009 to the end of April 2009)
    2008 $451,154,049,950.63
    2007 $429,977,998,108.20
    2006 $405,872,109,315.83
    2005 $352,350,252,507.90
    2004 $321,566,323,971.29
    2003 $318,148,529,151.51
    2002 $332,536,958,599.42
    2001 $359,507,635,242.41


    United States government actual budget figures during the 8-year Bush administration.

    United States Government Annual Budget during the Bush administration. Each year, on the first Monday in February, the President of the United States submits his budget request to Congress for the following fiscal year:

    United States federal budget, 2009 - $3.0 trillion (submitted 2008 by President Bush)
    United States federal budget, 2008 - $2.9 trillion (submitted 2007 by President Bush)
    United States federal budget, 2007 - $2.8 trillion (submitted 2006 by President Bush)
    United States federal budget, 2006 - $2.6 trillion (submitted 2005 by President Bush)
    United States federal budget, 2005 - $2.4 trillion (submitted 2004 by President Bush)
    United States federal budget, 2004 - $2.2 trillion (submitted 2003 by President Bush)
    United States federal budget, 2003 - $2.1 trillion (submitted 2002 by President Bush)
    United States federal budget, 2002 - $2.0 trillion (submitted 2001 by President Bush)

    Total US government Budget for period year 2001 to year 2008 = US$ 20 trillion.

    The cumulative total actual US Government budget for the 8-year period of the Bush administration was US$ 20 trillion dollars.


    Here is Bushes’ actual military spending - this does not include ANY costs related to Afghanistan or Iraq as they are all in supplemental spending bills:

    For Fiscal Year 2008 it is $481.4 billion
    For Fiscal Year 2007 it is $470.0 billion
    For Fiscal Year 2006 it was $441.6 billion
    For Fiscal Year 2005 it was $420.7 billion
    For Fiscal Year 2004 it was $399.1 billion
    For Fiscal Year 2003 it was $396.1 billion.
    For Fiscal Year 2002 it was $343.2 billion.
    For Fiscal Year 2001 it was $ 296.0 billion

    Note: The Iraq and Afghanistan supplementary spending as of end December 2008 = over $ 650 billion.


    Total Bush administration actual defense spending for 8-year period 2001 to 2008 = US$ 3,898 billion

    Plus other supplementary amounts that the government requested the total adjusted amount for defense spending for the 8-years of the Bush administration it will reach over the US$ 4 trillion dollar level.

    Note: The cumulative total actual US Government budget for the 8-year period of the Bush administration was US$ 20 trillion dollars and the actual defense spending for the 8-years was US$ 4 trillion dollar equal to 20 percent of the total.

    #18     Jun 3, 2009
  9. Cutten


    Why does Krugman think it was Reagan who was responsible for this?

    As for his deficit spending, don't forget that this basically ended the cold war within a decade without firing a shot. Reagan only ran huge deficits because of military spending increases, and as a result liberated about half a billion people from communist slavery. Almost all of E. Europe is now part of the civilised world and growing in prosperty, even Russia is now unthreatening and far better off than 20 years ago.

    So Reagan gets a pasting for a bill that most of Congress approved, but gets no credit for winning the Cold War? Hmm, seems a bit unfair on the Gipper. Reagan is immensely popular in E. Europe and much of the world outside the USA.
    #19     Jun 3, 2009
  10. Cutten


    I would place Kissinger 2nd on the "worst Nobel prize" award.

    Remember Krugman has NOT won a Nobel. There is no Nobel for economics.
    #20     Jun 3, 2009