Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Neither Krugman Nor Bernanke Can Distinguish Excessive Money Printing From Excessive Savings

Economics / Quantitative Easing Apr 07, 2009 - 02:02 AM GMT

By: Mike_Shedlock

Economics Best Financial Markets Analysis ArticleEarlier today Calculated Risk posted a video and links to Krugman's Talk In Spain on March 17. Here is the video. A partial transcript by me follows.

Krugman: " I am rather a supporter of Mr. Bernanke at the Federal Reserve which is partly because I think he is the right man for the job, partly because before he was demoted to his current position he was a professor at Princeton University which is where I also teach.

How does this end? What can make this better? One answer is a stronger European economy. This problem would be much easier if Europe was a vigorously growing economy with a positive rate of inflation.

Around the world people want to save more than business is willing to invest. We have a global paradox of excessive savings. The best thing that could happen to the economy would be to find a lot more investment opportunities, anything that provides quantum leaps into what we can do that would be worth doing even in a depressed economy. "

Note that Krugman is repeating the mindless chatter of Bernanke about excessive savings. The "Savings Glut" theory is easily refuted.

  1. Global Savings Glut Revisited December 2006
  2. Global Savings Glut Exposed September 2007
  3. Bernanke Blames Saving Glut For Housing Bubble June 2008
Any 8th grader would quickly come to the conclusion that it would be impossible to have too much savings. However, Krugman is trapped in academic wonderland and puts his faith on equations such as the following one from Competition, Coordination,and the Crisis

Problems With Academic Wonderland

The problems with such equations are many. For starters it assumes that one can correctly determine the ideal GDP when GDP figures themselves are ridiculously distorted. For example consider the following two cases.

1. The Government sends everyone in the country between 18 and 62 a check for $40,000. This does not add to GDP.

2. The Government hires everyone in the country to sponsor a road and collect trash. The salary is $40,000 a year. The results of the above would be a nearly identical waste of money, yet in case number two, every dime spent would add to GDP.

Clearly this is nonsense and one can see that by this formulation potential GDP is limited only by the capacity to print which is in theory infinite.

What Portion of Government Spending Is Productive?

Inquiring minds are asking "What portion of government spending is productive?"
  • In the case of dropping bombs in Iraq, government spending was and remains negative.
  • In the case of pork barrel projects in Congressional slush funds, the answer is very little.
  • In the case of pothole filling and bridge repair, the answer might be a great deal. However, excessive wages paid vs. what would be paid in a true competitive bidding process will need to be factored in.
  • In the case of government sponsorship and takeover of Fannie Mae, Freddie Mac, and AIG, the answer is close to zero.

Government spending simply cannot be as productive as private sector spending. Yet Krugman thinks government spending can lead us out of this mess. It cannot.

There is no such concept as an ideal growth rate in GDP other than the growth that would be achieved if government simply got out of the way and stopped wasting taxpayer money.

Printing vs. Savings

Both Bernanke and Krugman mistake printed dollars accumulating in China and Japan as excessive savings. The reality is that spending without prior saving (i.e. printing money) results in bubbles that eventually pop.

The global credit bubble has now popped and Bernanke and Krugman both want banks to lend when there is every reason for banks to not lend.

The reason banks are reluctant to lend is prior excessive spending led to malinvestments and overcapacity in autos, homes, durable goods, strip malls, and damn near everything else. There is simply no reason for banks to lend or for credit worthy borrowers to borrow.

First Global Output Decline Since 1930's

Industrial Production Annualized Three Month % Changes

The charts above show what happens when consumers are tapped out, wages are low, jobs are very difficult to find, and in short what happens when credit bubbles pop.

Thus the charts are not a result of excessive savings, but rather of prior excessive spending on a Ponzi pace that could not be maintained.

Unfortunately, neither Krugman nor Bernanke can distinguish cause from effect, or excessive printing from excessive savings.

By Mike "Mish" Shedlock

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules