Tuesday, December 18, 2012

Krugman: "I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits."


Finally Krugman has seen the light!  Oops.  Wait a minute. The title of this post was actually a quote from Kruggers back in 2003 in an opinion piece entitled "A fiscal Train Wreck".  Since then his views have changed somewhat, but I am sure he has a wonderful economic thesis, which only a Nobel prize winner can understand, to reconcile his completely conflicting views of deficits, interest rates, and the sustainability of entitlements:

December 2012
"Let’s get one thing straight: America is not facing a fiscal crisis."

March 2003
"We're looking at a fiscal crisis that will drive interest rates sky-high."


December 2012
"despite years of warnings from the usual suspects about the dangers of deficits and debt, our government can borrow at incredibly low interest rates"

March 2003
"I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits."


December 2012
"And don’t tell me that markets may suddenly turn on us. Remember, the U.S. government can’t run out of cash (it prints the stuff)"

 March 2003
"politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt."


December 2012
"there is a whole industry built around the promotion of deficit panic.  Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now"

 March 2003
 ''a fiscal crisis threatens our future standard of living-- investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic. But I've done the math, and reached my own conclusions"


December 2012
 "it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable"

March 2003
"Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don't matter."


December 2012
The budget deficit in 2011 was 8.7% as a percent of GDP and over 7% in 2012

March 2003  
"right now the deficit, while huge in absolute terms, is only 2 -- make that 3, O.K., maybe 4 -- percent of G.D.P"


December 2012
"often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong"

March 2003
 "because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest."


see Paul Krugman's  Opinion in the NY Times here, here and here

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