If you are interested in why the US Economy has failed after nearly 60 years of unprecedented success this article will help you comprehend the subject. It's very objective and indisputably factual. Take the time to familiarize yourself with this matter as it can help protect you in the aftermath of the collapse.

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" “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date. I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of 12 by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion. You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore. I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large. The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up. These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis. John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment. It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener. If you show a Keynesian this chart, their response would be: “Imagine how bad it would have been if we didn’t spend the $862 billion.”"

8/23/2011 9:56:11 PM

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"John Maynard Obama got everything he asked for in January 2009. He had both houses in Congress and did not need to consult Republicans to pass his Keynesian $862 billion porkulus bill. It seems that $252 billion, or 29% of the package was nothing more than transfer payments. Of course, according to Keynesians, the $252 billion should have had a multiplier effect when it was handed out. I think they were right. Obama was able to multiply the number of people on food stamps in January 2009 from 32 million to the current tally of 45.8 million. The monthly food stamp transfer payment has gone from $3.6 billion to $6.1 billion. Keynesians should be thrilled by this success story. Obama’s Keynesian dream bill included: $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years. $2 billion for child-care subsidies. $50 million for that great engine of job creation, the National Endowment for the Arts. $400 million for global-warming research. $2.4 billion for carbon-capture demonstration projects. $650 million on top of the billions already doled out to pay for digital TV conversion coupons. $8 billion for renewable energy funding. $6 billion for mass transit that had a low or negative return on investment. $600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles. Congress earmarked $7 billion for modernizing federal buildings and facilities. The Smithsonian received $150 million. The Department of Education got $66 billion, more than the entire Education Department spent a just 10 years ago. $6 billion of this subsidized university building projects. Obama declared in December 2008 there were shovel ready projects across the land that would create immediate jobs. Too bad he didn’t tell the American public only $30 billion of the $862 billion mountain of pork was earmarked for highways and bridges. Obama declared his stimulus would create 3.5 million jobs, later changed to “create or save”. There were 144 million Americans employed in January 2009. Today, there are 139 million Americans employed. Obama gives the term “success story” a new meaning. The Keynesians had their chance and now they want a do-over. Sorry, that isn’t how it works in the real world. As Speaker Nancy Pelosi put it, “We won the election. We wrote the bill.” No truer words have ever been spoken. As we know, that was only the beginning of our Keynesian debt nightmare. Let’s do some critical thinking and assess the results of Obama’s other Keynesian solutions: The Homebuyer Tax Credit cost taxpayers $27 billion or $43,000 per additional house sold. The Keynesians handed 3.9 million people $7,000 to do something they were going to do anyway. They lured first time home buyers into the market. Since the credit expired, median home prices have fallen $15,000 and continue to fall. This wonderful government program has created more underwater homeowners and did nothing to stabilize the housing market or home prices. Cash for Clunkers cost taxpayers $3 billion. An incremental 125,000 cars were sold at a cost of $24,000 per car. This Keynesian dream program lured more people into debt and warped the used car market by destroying used cars and driving up prices for poor people who couldn’t afford a new car. There were no carryover benefits except for government controlled union car makers. Obama’s HAMP program allocated $11 billion to supposedly allow 4 million homeowners to modify their mortgages, reduce their monthly mortgage payments and avoid foreclosure. HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. It has achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default. Far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity. Obama even handed $30 billion to the largest homebuilder corporations in the country, run by billionaires like Bob Toll, by allowing them to carry back their losses and wipe out tax liabilities in prior years. This did wonders for the housing market. It did stimulate bonus payments for the CEOs of these companies. Billions of tax revenue was lost by handing out $1,500 tax credits for people to buy new windows, doors, and appliances they were going to buy anyway. We are still waiting for that multiplier effect. The usual suspects are now declaring that we can’t make the same mistakes FDR made in 1937 resulting in a dramatic downturn in 1938. As usual, the Keynesian storyline about the Great Depression is false. Depression Keynesian Fallacy One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again. – Doug Casey Keynes' theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run. Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far. The Great Depression had the same origins as our current Greater Depression. The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash. Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but entirely phony. Between 1929 and 1933 the Hoover administration increased real per-capita federal expenditures by 88%, not exactly the austerity measures described in fantasy stories concocted by the mainstream media. The Great Depression officially lasted from 1929 until 1940. What is not well known is that real GDP was at the same level in 1936 as it had been in 1929. In no small part because real GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after real GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929. By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating new agencies and employing people in make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration swelled drastically under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression. The facts powerfully contradict the notion endorsed by Krugman and other Keynesian devotees that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt slashing spending. In fact, real GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, proving that Roosevelt did not drastically cut spending. To the extent that he eased up on the accelerator, it was by cutting back on useless jobs programs like those provided by the Works Progress Administration and the Public Works Administration. Austerity did not derail the recovery. The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries."

8/23/2011 9:56:59 PM

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"Paul Krugman’s recent veiled yearning for a war or staged crisis to revive the economy through spending to fight the war is another Keynesian fallacy perpetuated by the mainstream media. These mindless non-critical thinking talking heads actually believe World War II ended the Great Depression. Doug Casey obliterates their fantasy: “People say that World War II cured the Depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the Depression. The thing that ended the Depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.” The fact that the entire world was left in smoldering ruins after World War II, except for the United States, may have contributed slightly to our recovery from the Great Depression. According to Murray Rothbard, in his book America’s Great Depression, the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression. The upshot will be a second Greater Depression and further impoverishment of the dwindling middle class. The implications of more wasteful government stimulus programs, more quantitative easing and more debt are: further debasement of the currency and ultimately a hyperinflationary collapse. The great economist John Maynard Keynes understood currency debasement: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” How to Cut Spending While Actually Increasing Spending “Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – John Maynard Keynes – The Economic Consequences of the Peace Obama’s plan to revive America will be announced with great fanfare in two weeks. We know for sure he will propose these two brilliant ideas: Extending unemployment compensation again at a total 2012 cost of $65 billion. Because we know that paying people to not work creates millions of jobs. The multiplier effect is off the charts. Why work when you can watch The View and chow down on cheese doodles purchased with your SNAP card for 99 weeks? Extending the payroll tax cut at a total 2012 cost of $100 billion. This was supposed to give a dramatic boost to the economy in FY11. Have you noticed any boost? A Keynesian will argue, “Imagine if we hadn’t done it.” A critical thinker might ask: Is it prudent to increase the unfunded Social Security liability by another $100 billion and hand the bill to future unborn generations, so we can buy a new IPod 2 today? It is a certainty that Obama will announce an infrastructure bank or some variation to spur investment in our national infrastructure that is crumbling by the day. Top Keynesian, and architect of the Obama stimulus plan, Larry Summers has been blathering about this for months. Even though the first stimulus plan was sold as an infrastructure plan, they mean it this time. As usual, the storyline is false. You can’t drive anywhere in this country and not be inconvenienced by road widening, bridge building, and repaving projects. The Keynesians act like infrastructure projects are highly unusual and need new Federal dollars to jump start the engine. The fact is that every Federal, State and municipal government has a capital fund that is budgeted every year. Most of the projects have multiple year lead times. They require planning and coordination. The reason we have 160,000 structurally deficient or obsolete bridges and thousands of miles of crumbling underground pipes is because politicians decided to spend their budgets on something more useful like train museums, murals, turtle crossings, and studies on the mating habits of ferrets. The country has lost approximately seven million jobs since 2007. Five million of the jobs were lost in sales industries and manufacturing industries. There are 139 million jobs in America today and only seven million, or 5% of all jobs, in the construction industry. How do Keynesians expect to revive the job market with an infrastructure bank that will benefit, at most, 5% of the U.S. workforce? Let me guess. They will propose billions of new spending on education so they can retrain sales clerks from Wal-Mart into architects for designing 160,000 new bridges. Barack Obama will stand in front of the American people and lie. He is a born again cost cutter, who will propose new spending. As anyone with a calculator can figure out, the two guaranteed proposals from his upcoming speech will increase spending by $165 million in 2012. If you go back to the handy dandy chart from the CBO showing the “horrific spending cuts” from the recent debt ceiling deal you will see these “cuts” total $122 billion between 2012 and 2014. Barack will wipe out all of the supposed savings through mid 2015 with his new Keynesian plan. But don’t worry. His plan will have huge spending cuts in 2017 after his hoped for 2nd term is finished. Keynesians always promise to cut spending once their current emergency ends. The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do. The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans. None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted: “There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”"

http://www.theburningplatform.com/?p=20378


[Edited on August 23, 2011 at 9:59 PM. Reason : image and link]

8/23/2011 9:57:46 PM

No one on earth would be willing to read that wall of text, lock.

[Edited on August 23, 2011 at 10:16 PM. Reason : ]

8/23/2011 10:15:47 PM

I'm with face on this one.

8/23/2011 11:00:14 PM

Since you're going to get someone claiming that you've taken a Krugman statement out of context, I'll go ahead and get this out there (posted by a user on Reddit):

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"So the direct economic impact of the (911)attacks will probably not be that bad. And there will, potentially, be two favorable effects. First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. Paul Krugman, 2001 However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve — let's have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect. Paul Krugman, 2001 During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates? Paul Krugman, 2001 Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. Paul Krugman, 2001 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, 2002 Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all. Paul Krugman, 2004 As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst. Now the question is what can replace the housing bubble. Paul Krugman, 2005 To be honest, a new bubble now would help us out a lot even if we paid for it later. This is a really good time for a bubble… There was a headline in a satirical newspaper in the US last summer that said: "The nation demands a new bubble to invest in" And that’s pretty much right. Paul Krugman, 2009 If we discovered that space aliens were planning to attack, and we needed a massive buildup to counter the space alien threat, and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. Paul Krugman, 2011"

8/23/2011 11:14:52 PM

Larry Summers, I almost forgot about that asshat. ^ the Krugman quotes are too good. Racking your brain looking for the next bubble, just to keep this artificial debt fueled economy going is no way to go through life son.

8/23/2011 11:24:23 PM

^^^^^ I read about 4 lines of that so far, and I will read the whole thing later. I am guessing that I will be more or less like-minded with the author.

...but I'm pretty sure it's not going to be "very objective" like you claimed.

[Edited on August 23, 2011 at 11:26 PM. Reason : ^^^^^]

8/23/2011 11:25:56 PM

So many words to express so little substance.

3 quick points then I wont bother typing any more.

#1. The basic argument is: "We spent all this money and we still have high unemployment!!! Therefore, all Keynesian theory must be invalid!!!" Clearly, the author has never heard that what actually matters is NET fiscal stimulus. While the federal government was expanding its spending, state governments were constricting theirs. As a result, net fiscal stimulus was not much and no Keynesian would be suprised by the fact economic performance has been so weak (and economists like Krugman weren't). There are no contradictions here.

#2. In describing the failure of government policy before/after the Great Depression, the author cites Murray Rothbard and his book America's Great Depression. Honestly, if you want to hitch your wagon to Austrian theories, this isnt how to do it. Rothbard's account of how "artifical meddling in the economy was a disaster prior to the Great Depression" is theoretically flawed (for essentially the same reasons Krugman lays out here: http://www.slate.com/id/9593/). This is why Modern Austrians have moved on to Roger Garrison's reinturpretation of the Austrian Business Cycle Theory. http://www.auburn.edu/~garriro/tam.htm

#3. I can see why face decided to paste a wall of text instead of just a link to the original blog post. The author looks like a real nutter. Here is the original post:
http://www.theburningplatform.com/?p=20378

And here is a recent post on illuminati conspiraces.
http://www.theburningplatform.com/?p=20510

If you have not read this piece, don't waste your time.

[Edited on August 24, 2011 at 1:45 AM. Reason : ``]

8/24/2011 1:31:51 AM

Quote :

"net fiscal stimulus was not much"

Do you have the numbers for Fed spending increases vs State spending decreases?


Btw, did Keynes say anything about...preventing bubbles? It seems like if the prescriptions are for the government to just spend more money and that is a simple way to get out of the post bubble recession then it would be simple enough to just prevent them in the first place.

[Edited on August 24, 2011 at 7:14 AM. Reason : .]

8/24/2011 6:55:09 AM

I'm not going to read all of that on my phone, but...

If you think the economy has failed, I would say the economy hasn't really been successful over the past 60 years.

8/24/2011 7:18:49 AM

Kris, I didn't expect people who already know everything to read it. This summary is for the people who haven't closed their mind because they worship communist statues.

8/24/2011 8:34:53 AM

alternate explanations that have been making the rounds

Quote :

"1.The basic Rogoff/Reinhart observation that financial collapses due to asset bubbles just take a long time to work through. Given the size of the 2008 collapse, historical evidence suggests that it's going to take five or six years to recover, and that's that. 2.The Tyler Cowen "Great Stagnation" hypothesis. We've picked through all the low-hanging economic fruit over the past century, and like it or not, we're now entering an extended period of low productivity growth because we're not inventing lots of cool new stuff. 3.The related (I think) investment drought hypothesis. Ben Bernanke famously ascribed the housing bubble partly to a "savings glut" from overseas, and the flip side of that is an investment drought. The reason financial assets became so popular is that, even with all that money sloshing around the system, there simply weren't very many high-quality investment opportunities available in firms that make real-world goods and services, and that hasn't changed. 4.The peak oil theory. Production of oil has pretty much maxed out, which means that every time the economy gets moving it will create a spike in oil prices, which will send the global economy back into recession. We're now in a continual oil-fueled boom/bust cycle that limits our long-term growth rate. 5.The Michael Mandel contention that increased consumption simply leaks out of the economy to China and other countries. Stimulating consumption in the U.S. just won't do much for the American economy if all those extra dollars mostly get spent on overseas goods and services. 6.Various structural explanations that suggest the United States has an increasing number of workers who flatly don't have the skills to do anything useful in the modern economy — a problem that was temporarily masked by the housing bubble and was only fully exposed when the economy collapsed. This takes various forms, both weak (workers can be retrained but it will take a while) and strong (forget it, they're simply useless). 7.Miscellaneous Other theories: regulatory uncertainty is the real problem, taxes are too high, the EPA is strangling America, hyperinflation is just around the corner, markets are cowering in fear of future deficits, etc. etc."

http://earlywarn.blogspot.com/

Like most things in the world the answer is more complicated than just a single policy so a combination of the above is likely whats dragging us down IMO

8/24/2011 8:53:25 AM

^ #3. Interesting way to spin that. It's not an investment drought -- it's the fact that financial assets ARE much easier to invest in and promise more rewards than finding businesses, evaluating their business plans, and waiting more than a quarter for them to pay a return. Now, after all that deregulation, local banks take deposits and put them in hedge funds instead of making business loans. Why put money into the real economy when the financial economy is so much easier?

That's not a sign of lack of investments. That's the sign of an out-of-control, dysfunctional financial market.

8/24/2011 9:13:11 AM

Yeah I think I agree with you on that one

like the author I think 1, 4, 5, and 6 are the most valid. And personally 1 and 4 are the most important of those

8/24/2011 9:27:00 AM

Quote :

"#1. The basic argument is: "We spent all this money and we still have high unemployment!!! Therefore, all Keynesian theory must be invalid!!!" Clearly, the author has never heard that what actually matters is NET fiscal stimulus. While the federal government was expanding its spending, state governments were constricting theirs. As a result, net fiscal stimulus was not much and no Keynesian would be suprised by the fact economic performance has been so weak (and economists like Krugman weren't). There are no contradictions here. "

No, the argument is, "We spent all this money, created money, borrowed money, and we're actually worse off than the Keynesians projected we would be without the stimulus.

For Keynesians, there's this magic point where we spend enough money and we get back to a sustainable economy. Of course, no civilization in recorded history has ever hit the magic point, so we have no way to prove that it actually exists. Keynesians will say that we didn't spend enough regardless of how much is spent.

It's so fucking easy to understand. LOW INTEREST RATES --> EXCESS CREDIT --> SPENDING EXCEEDS DEMAND THAT WOULD HAVE EXISTED IN FREE MARKET --> BUBBLE CREATED --> BUBBLE BURSTS

It's obvious what Krugman has been doing. He wants to have a permanent bubble economy where we continually take out debt and funnel money into new projects. The problem is that this always leads to disaster, and it will lead to disaster this time.

[Edited on August 24, 2011 at 11:50 AM. Reason : ]

8/24/2011 11:49:28 AM

I read the entire thing while in an alcohol induced haze last night. My main take away was that an "unbiased" article that is supposed to explain how 60 years of unprecedented success went down the tube in 3 mentioned Obama 22 times. I really really really wish he, or any president, had that kind of power but they just don't.

8/24/2011 11:54:46 AM

The President has limited power, but they also have a lot of sway. A President that was serious about austerity could make it happen. Obama is thoroughly Keynesian. He thinks that economic growth comes from the federal government. In reality, the federal government needs to get out of the way and allow the United States to become a competitive place to run a business again.

The federal government is not capable of efficiently creating jobs. They would need to create millions of jobs over the next few years, but all of those jobs come at a cost. We need a ground up recovery, not stimulus injected by the government.

8/24/2011 11:59:28 AM

Yeah bro, fine, Obama is stifling the recovery. I may not agree, but for the sake of argument, I'll concede that a logical case could be made supporting that conclusion. That's not what the article is saying though. It's literally pinning the entire blame for the economic crisis on him. That totally kills the credibility of the article and it's writer for me.

8/24/2011 12:10:16 PM

I think anyone here would admit that George W. Bush was a Keynesian, and the case could be made that Reagan was as well. Bush was completely supportive of what Greenspan did. The problem is that Obama is President right now, and he subscribes to a failed ideology. Stimulus is killing us.

The thing is, I see Facebook status updates all the time from people that think Krugman is a genius and that anyone who disagrees with him is foolish. Trying to convince these people otherwise is like telling a Christian that the bible was written by men.

This isn't a Republican versus Democrat thing. Both parties have been looting the coffers behind the scenes. That's why you've got folks like Alan Grayson and Dylan Ratigan who are, traditionally, very anti-Republican, but they can still see what's going on here.

[Edited on August 24, 2011 at 12:40 PM. Reason : ]

8/24/2011 12:30:13 PM

Quote :

"That's why you've got folks like Alan Grayson and Dylan Ratigan who are, traditionally, very anti-Republican, but they can still see what's going on here."

being critical does not equate to "blow the whole thing up"

8/24/2011 1:53:33 PM

If Obama is stifling a recovery, so did GWB. GWB got to implement a large percentage of the policies republicans had been having wet dreams about for years. So far, most of what Obama has done is to continue those policies.

Other than the healthcare plan that won't even be in effect for several years, the policies are the same if not more Republican than GWB.

What exactly do people want? Hell, should we even believe that people know what they want?

8/25/2011 12:33:00 AM

I find it funny that the OP thinks this article "explains" anything. What sort of "explanation" is contained in this article, other than extremely coarse, unconvincing correlational arguments? I consider an explanation to actually reduce things to first principles, attempt to, or at least propose a mechanism. All I see are "hurf -- I'ma call this thang that thang and then show that these two things go together". I'm sorry if pointing to a simple-minded correlation that barely fits the definition assigned to it fails to convince me.

Destroyer: you have no clue what "being a Keynesian" means. In fact you don't care to know, I take it, as you aren't about to read Keynes any time soon or even spend the time figuring out what actual, self-labeled Keynesians (who know the theory) think. It's not like there isn't an Internet full of people laying out the arguments clearly to you.

Three's nothing "Keynesian" about doubling the national debt paying for peacetime military research/investment, and then continuing such reckless (and useless) investment for a few decades, neglecting investments that give a damn. Has anybody forgotten our crumbling bridges, levees, and increasingly stupid swarms of children who are less and less capable, qualified, educated?

[Edited on August 25, 2011 at 3:33 AM. Reason : .]

8/25/2011 3:31:53 AM

Quote :

"Has anybody forgotten our crumbling bridges, levees, and increasingly stupid swarms of children who are less and less capable, qualified, educated? "

What does this have to do with Keynes?

8/25/2011 6:56:57 AM

About as much as military spending, to be specific. I'm simply pointing out a major source of the problems we're having today, which will no likely be blamed on "Keynesian" economics, would be solved by what one might consider sensible policy based on extensions of Keynes' work

[Edited on August 25, 2011 at 7:03 AM. Reason : .]

8/25/2011 7:03:24 AM

Let me step back a second, you threw up this strawman

Quote :

"Three's nothing "Keynesian" about doubling the national debt paying for peacetime military research/investment"

And now you're trying to attribute public works spending as a good idea to Keynes when he basically advocated against it during times of recession?

To be clear, people are attributing problems with getting out of recession to Keynesian theories because that is what politicians have used over the past decade+. But that doesn't mean they think every problem with the economy are attributable as such.

8/25/2011 7:19:22 AM

Quote :

"And now you're trying to attribute public works spending as a good idea to Keynes when he basically advocated against it during times of recession?"

I'm sorry what? You're going to have to expand upon this, explicate it some, or give me a specific place in Keynes to support this. Keynes supported rather active fiscal policy in recession -- I don't agree with your characterization, so you're going to have to defend it some.

Quote :

"To be clear, people are attributing problems with getting out of recession to Keynesian theories because that is what politicians have used over the past decade+. But that doesn't mean they think every problem with the economy are attributable as such."

I have no idea what you're trying to say here. Many would argue the policies of the last "decade+" are not Keynesian. Given that you claimed Keynes advocated against deficit spending in times of recession, I'm no longer sure we have the same idea in our heads.

8/25/2011 7:33:04 AM

What I wrote needs to be clarified a bit. Military spending can certainly be interpreted as Keynesian, but there's no reason to believe there's some necessary link there because there isn't. People could be hired to do useful things, after all. Hell, things useful to the private sector.

8/25/2011 7:52:04 AM

If the spending can be justified because it is "useful" and therefore worth the money/debt then it is not keynesian spending.

8/25/2011 8:46:23 AM

8/25/2011 9:31:20 AM

Quote :

"If the spending can be justified because it is "useful" and therefore worth the money/debt then it is not keynesian spending."

Where on Earth did you read this?

[Edited on August 25, 2011 at 10:05 AM. Reason : .]

8/25/2011 10:05:26 AM

Quote :

"Destroyer: you have no clue what "being a Keynesian" means. In fact you don't care to know, I take it, as you aren't about to read Keynes any time soon or even spend the time figuring out what actual, self-labeled Keynesians (who know the theory) think. It's not like there isn't an Internet full of people laying out the arguments clearly to you."

I've heard the arguments. Is Krugman a Keynesian, or is he just a lunatic?

I don't care about everything Keynes ever wrote. I do care about people that read what he wrote and think that the state should start borrowing money like crazy to "stimulate the economy." It has never worked. It will never work.

What happened to all those shovel ready jobs, anyway? It is true that it would be better to borrow and spend money on infrastructure in the United States, but how many jobs do you think that's really going to create? We can't have a permanent economy where everyone is just repairing U.S. infrastructure. Eventually we need real jobs generated by real businesses.

[Edited on August 25, 2011 at 11:38 AM. Reason : ]

8/25/2011 11:38:32 AM

Quote :

"I've heard the arguments. Is Krugman a Keynesian, or is he just a lunatic?"

Pretty sure he'd cast himself a Keynesian but I'm not confident you are familiar at all with Krugman either.

Quote :

"I don't care about everything Keynes ever wrote. I do care about people that read what he wrote and think that the state should start borrowing money like crazy to "stimulate the economy." It has never worked. It will never work."

Has it ever occurred to you that when you receive your information filtered by gate-keepers, you're not getting the whole story? I'm not demanding you read everything Keynes ever wrote. But how about The General Theory, which is something you should certainly read if you're thinking about this crisis at all? I'm having a hard time how you can go on and on opining about Keynes when you admit you have only 2nd-hand knowledge of the beliefs and positions, and continue to do this after people familiar with the primary text have told you to dig deeper. Are you telling me you seriously don't have the intellectual curiosity to sustain you through a few hundred pages of study?

Quote :

"What happened to all those shovel ready jobs, anyway? It is true that it would be better to borrow and spend money on infrastructure in the United States, but how many jobs do you think that's really going to create? We can't have a permanent economy where everyone is just repairing U.S. infrastructure. Eventually we need real jobs generated by real businesses."

And you beautifully demonstrate to me that your 2nd-hand sources of "Keynes" are inadequate. Nobody's suggesting we hammer away at the infrastructure forever. Krugman isn't. If Keynes were alive he wouldn't either.

At this point you must either think I'm a charlatan or an idiot.

8/25/2011 11:42:01 AM

Quote :

"Pretty sure he'd cast himself a Keynesian but I'm not confident you are familiar at all with Krugman either."

You're full of shit, then. I've suffered through more Krugman articles than I care to recount. His positions are quite clear.

This isn't about Keynes, to me. This is about the actual policy of borrowing and debasing the currency in order to fund supposed "stimulus." In fact, Keynes advised against this kind of behavior, but his "gate keepers" (those that use Keynesian theory to justify their disastrous policies) are cheerleading the process. I mean, straight foolish says we need to be spending much more. Where do you think this money is going to come from? The rich? No, it's going to get printed.

How do you respond to that list of Krugman quotes I posted earlier in the page? Are you saying that he has not advocated one bubble after another to escape recession?

8/25/2011 11:53:26 AM

Quote :

"It is true that it would be better to borrow and spend money on infrastructure in the United States, but how many jobs do you think that's really going to create?"

How many jobs did the Eisenhower Interstate system make? When you give a tax cut to a business, they can go and spend that money anywhere, including China, Pakistan, etc. When you spend that money on infrastructure that streamlines communications, transportation, and makes the market more efficient in general, that essentially cuts costs for businesses AND workers that can't be taken advantage of outside the country.

Quote :

" We can't have a permanent economy where everyone is just repairing U.S. infrastructure. Eventually we need real jobs generated by real businesses."

As I said, infrastructure facilitates jobs by reducing costs across the board for the private sector. Considering our infrastructure is nowhere near up-to-date or even adequate, I think we can do a hell of a lot more work on it before we can start to worry about our economy being dominated by workers building circular railroads forever.

[Edited on August 25, 2011 at 11:58 AM. Reason : /]

8/25/2011 11:57:49 AM

Quote :

" How do you respond to that list of Krugman quotes I posted earlier in the page? Are you saying that he has not advocated one bubble after another to escape "

I thought it was pretty clear from that quote that he was extrapolating Greenspan's economic policies and musing on conditions (like a housing bubble) that would sustain the economy in the short term and be consistent with Greenspan's prior activity. Also it's important to note that the housing bubble didn't wreck our economy by virtue of being a housing bubble, it had more to do with the lax financial regulations (or lack thereof) governing the trading of securities and other financial instruments related to housing.

I suppose you think Krugman also wants more Earthquakes and an Alien Invasion too?

[Edited on August 25, 2011 at 12:07 PM. Reason : .]

8/25/2011 12:06:13 PM

That's completely wrong. He very clearly states that Greenspan was not slashing rates (read: blowing up bubbles) aggressively enough.

This is the thing that bugs me about Krugman supporters. No matter what Krugman says, how clear it is, or how much context is provided, somehow, he's not advocating the policies that he is plainly advocating.

8/25/2011 12:10:36 PM

I suppose you think Krugman also wants more Earthquakes and an Alien Invasion too?

Seriously, just answer, I'm trying to find out if you have any kind of nuance detection abilities at all.

[Edited on August 25, 2011 at 12:40 PM. Reason : .]

8/25/2011 12:40:31 PM

Quote :

"That's completely wrong. He very clearly states that Greenspan was not slashing rates (read: blowing up bubbles) aggressively enough."

And here, in his own words (Krugman is very adamant about responding to critics)

http://krugman.blogs.nytimes.com/2010/04/05/me-and-the-bubble/

Quote :

"So did I call for a bubble? The quote comes from this 2002 piece, in which I was pessimistic about the Fed’s ability to generate a sustained economy.If you read it in context, you’ll see that I wasn’t calling for a bubble — I was talking about the limits to the Fed’s powers, saying that the only way Greenspan could achieve recovery would be if he were able to create a new bubble, which is NOT the same thing as saying that this was a good idea. Of course, I know that this explanation won’t keep the haters from pulling up the same quote out of context, over and over. But did I call for low interest rates? Yes. In my view, that’s not what the Fed did wrong. We needed better regulation to curb the bubble — not a policy that sacrificed output and employment in order to limit irrational exuberance. You can disagree if you like, but that doesn’t make me someone who deliberately sought a bubble."

Roughly like what I said, Krugman was musing on moves Greenspan could make, consistent with his prior actions, that would sustain the economy for some period of time. That doesn't mean Krugman though they were the best option.

Quote :

"Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened."

And from another analyst

http://econlog.econlib.org/archives/2009/06/defending_what.html

Quote :

"1. Krugman was mainly expressing pessimism. He was not cheerfully advocating a housing bubble, but instead he was glumly saying that the only way he could see to get out of the recession would be for such a bubble to occur. 2. In the event, we had a housing bubble and we got out of the recession. To me, this raises the question of whether a distorted recovery is better than an undistorted recession. That question might be asked in the context of fiscal stimulus as well--at what point do the distortions of the stimulus outweigh getting out of a recession? 3. I personally do not think that Greenspan caused the housing bubble. I do not believe that monetary policy and short-term interest rates are as all-powerful as many economists do. What I was writing in August of 2002 was this. 4. Paul Krugman and Brad DeLong thought that Greenspan kept rates too high in 2002. This makes them poorly positioned to criticize Greenspan now for keeping rates too low. I am pretty sure that Brad is guilty of this hypocrisy. I believe that Paul is not. [UPDATE: Brad denies committing this hypocrisy, and he is right. He has stood by his views that interest rates in 2001 and 2002 were, if anything, too high. I stand corrected.] "

You're trying so hard to make Krugman a bad guy that you're willing to think that he was gleefully supporting creating a bubble, even using the word bubble, which of course implies a burst at some point. I mean really, who's going to stake their reputation on honestly suggesting we just create a string of unsustainable bubbles until the end of time? Nobody. You don't have to think Krugman's a genius to admit that he's a human being of at least average intelligence, and nobody of average intelligence would suggest an ongoing economic regime of unsustainable bubbles following each other. You can't understand nuance or dry pessimism, that or you're purposely shutting off your mind to the possibility that the worst possible reading of your ideological opponent's words isn't always the most correct one.


[Edited on August 25, 2011 at 1:00 PM. Reason : .]

8/25/2011 12:44:29 PM

Blaming the Fed's creation of a housing bubble for the economic crisis is like blaming Subaru's creation of the WRX for a bunch of teenage drivers wrapping them around trees (i was one of those stupid teenage drivers who wrapped one around a tree ).

[Edited on August 25, 2011 at 1:06 PM. Reason : waaay too much coffee this morning]

8/25/2011 12:50:12 PM

Quote :

"That's completely wrong. He very clearly states that Greenspan was not slashing rates (read: blowing up bubbles) aggressively enough. This is the thing that bugs me about Krugman supporters. No matter what Krugman says, how clear it is, or how much context is provided, somehow, he's not advocating the policies that he is plainly advocating."

Sigh, what makes me a Krugman supporter? His stance on a variety of things I consider to be wrong. That doesn't mean I haven't familiarized myself with his position.

8/25/2011 2:37:37 PM

Everything to the right of "free market currency" is Krugmanesque.

Being a democrat or a democratic socialist or a social democrat or a liberal or a neoconservative or a syndicalist or an integralist or a bokonist or a eurocommunist or a follower of Juche Thought is also Krugmanesque according to the far right.

[Edited on August 25, 2011 at 3:19 PM. Reason : x]

8/25/2011 3:16:45 PM

Getting desperate, eh?

8/25/2011 3:17:42 PM

There's literally nothing new under the sun to say to someone who can't be convinced that their extremism is inerrant.

8/25/2011 3:20:02 PM

Agreed.

Quote :

"Blaming the Fed's creation of a housing bubble for the economic crisis is like blaming Subaru's creation of the WRX for a bunch of teenage drivers wrapping them around trees"

It's not. Krugman pushed for low interest rates, and it doesn't appear that anyone is denying that.

The disconnect, I guess, is that (you believe) low interest rates didn't cause the housing bubble, just lax lending standards. The reality is that it was both, but one came before the other. The Fed was providing the alcohol, the party got out of control, the Fed kept providing more alcohol even when it was obvious that things were getting worse, and the blame is purely on the partiers and not the people throwing the party.

In fantasy land, which is where you folks live apparently, interest rates have nothing to do with the rate of borrowing. Just as many home loans would have been offered with 0% interest rates or 10% interest rates. It wasn't the Fed's fault that the banks took advantage of cheap money and gave out loans to people that couldn't reasonably be expected to pay them off, right?

This is what's so ridiculous. Interest rates are a price. Setting interest rates is setting prices. When interest rates are way below what they would be normally, that means the system is flooded with credit, which means resources are funneled into areas that would not normally be booming. Do you guys just reject the concept of market feedback or what?

[Edited on August 25, 2011 at 3:29 PM. Reason : ]

8/25/2011 3:28:32 PM

Quote :

"Getting desperate, eh?"

Says the guy quote mining some out-of-context rhetorical remarks to try and disparage a guy who has hundreds of blogs and many books and papers outlining his views in detail.

Quote :

"It wasn't the Fed's fault that the banks took advantage of cheap money and gave out loans to people that couldn't reasonably be expected to pay them off, right?"

Woohoo this old tale again straight out of Rush Limbaugh's bedtime storybook. Let me guess, incoming rant about the CRA?

[Edited on August 25, 2011 at 3:31 PM. Reason : .]

8/25/2011 3:29:28 PM

Not lax lending standards, destroyer, lax regulations on the bundling and trading of mortgage securities and other financial instruments like credit default swaps.

8/25/2011 3:30:33 PM

^^^So what, to you, is a "moderate" ideology?

[Edited on August 25, 2011 at 3:31 PM. Reason : x]

8/25/2011 3:31:35 PM

Quote :

"The disconnect, I guess, is that (you believe) low interest rates didn't cause the housing bubble, just lax lending standards. The reality is that it was both, but one came before the other. The Fed was providing the alcohol, the party got out of control, the Fed kept providing more alcohol even when it was obvious that things were getting worse, and the blame is purely on the partiers and not the people throwing the party."

But where was the police that was supposed to show up and break up the party? Oh that's right, you're an anarchist and don't believe in police.

8/25/2011 3:37:19 PM

So, to go along with my analogy, that's like throwing a party, people getting way too drunk, keeping the alcohol flowing, and when the house is completely trashed in the morning, blaming the mess on lack of rules prohibiting vomiting on the floor and drawing sharpie penises on people. Those events never could have taken place if the person throwing the party had been responsible, rather than fueling the problem.

MBSs were just a way for banks to package in the good with the bad. It was a chain reaction. The banks didn't care who they were loaning to, because they knew they'd just be selling MBS on a secondary market as soon as the loan was approved. It's not coincidence that the derivatives market exploded in the years following absurdly loose monetary policy.

Quote :

"But where was the police that was supposed to show up and break up the party? Oh that's right, you're an anarchist and don't believe in police."

Tell me, what happens when the police bust a party? Who gets a ticket, assuming no one is underage?

[Edited on August 25, 2011 at 3:39 PM. Reason : ]

8/25/2011 3:38:19 PM