The Kroog Versus Not Inflation

The noises that I'm hearing from the Serious Beltway People are that we need to do two things:  cut the debt and raise interest rates soon before inflation gets here.  The problem is the latter will do nothing for the former, and the former will ensure that we'll need to do the latter.  As Krugman points out, it's madness.

So the OECD wants the Fed to start raising interest rates soon — in the next six months or less — because … well, we can look at the OECD’s own forecast. According to this forecast, in the fourth quarter of 2011 — a year and a half from now — the unemployment rate will still be 8.4 percent. Meanwhile, inflation will be 1 percent — well below the Fed’s implicit target of 2 percent. My view is that inflation will be lower than that — core inflation is already below 1 percent. But even given the OECD’s forecast, what possible reason would there be to tighten monetary policy now, when the economy will still have vast excess capacity and inflation that’s too low at the end of next year?

The only explanation seems to be at the beginning of that passage: some people, the report claims, are starting to think there might be inflation, so even though they’re wrong according to our forecasts, see, we need to head off this phantom threat and slow the economy’s recovery … what?

What’s so scary about this is that the OECD virtually defines conventional wisdom; it’s a numbered-paragraph sort of place, where a committee has to sign off on everything, policing the nuances as they say. So what we get from this is that among sensible people the idea that you should undermine recovery to appease those who think there might be inflation even though actually there isn’t has become conventional wisdom — so conventional that it’s treated as self-evident.

This is really, really bad.

As I keep saying, massive disinflation from continues losses in the residential and commercial real estate markets will continue to keep prices AND growth low.  We have a 9.7% unemployment rate and an unofficial rate approaching 18%, Republicans are screaming that the national debt is more important than double-digit unemployment.

Republicans yesterday called the bill "irresponsible" because of its cost and impact on the national debt. To bolster their argument, they referred to the US Debt Clock.org, which marked a milestone yesterday of $13 trillion in borrowing by the Treasury.

Unless lawmakers act before June 1 to pass either HR 4213 or a short-term extension of federal unemployment benefits, thousands of people will begin exhausting their unemployment benefits next week.  

The GOP in other words would rather have these folks out of work. Conservative Dems aren't helping on this either.  And people wonder why they hate Washington.  You know what would help the economy?  EIGHT MILLION $^*%#&*@ JOBS.

Assholes.  Meanwhile, Ambrose Evans-Pritchard reminds us just how bad things are going to be here.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said. 

Think Republicans will allow another stimulus?  Course not. You thought the 2008 crash was bad?  Wait until you get a load of the second half of this disaster.