Paul Krugman is feeling stabbed in the back by Ben Bernanke and his signals that the Fed is going to begin “tapering” the quantitative easing that is the only thing presently propping up the markets:
Lately, Fed officials have been issuing increasingly strong hints that
rather than doing more, they want to do less, that they are eager to
start “tapering,” returning to normal monetary policy….So what do they think they’re doing? One answer might be that the Fed has quietly come to agree with critics
who argue that its easy-money policies are having damaging side-effects,
say by increasing the risk of bubbles. But I hope that’s not true,
since whatever damage low rates may do is trivial compared with the
damage higher rates, and the resulting rise in unemployment, would
inflict.In any case, my guess is that what’s really happening is a bit
different: Fed officials are, consciously or not, responding to
political pressure. After all, ever since the Fed began its policy of
aggressive monetary stimulus, it has faced angry accusations from the
right that it is “debasing” the dollar and setting the stage for high
inflation — accusations that haven’t been retracted even though the
dollar has remained strong and inflation has remained low. It’s hard to
avoid the suspicion that Fed officials, worn down by the constant
attacks, have been looking for a reason to slacken their efforts, and
have seized on slightly better economic news as an excuse….It’s sad and depressing, in both senses of the word. The fundamental
reason our economy is still depressed after all these years is that so
many policy makers lost the thread, forgetting that job creation was
their most urgent task. Until now the Fed was an exception; but now it
seems to be joining the club. Et tu, Ben?
When I published The Return of the Great Depression back in 2009, many readers found it hard to believe that the Keynesians, and the Neo-Keynesians, paid absolutely no attention to debt. But it is now 2013 and the leading Neo-Keynesian, the Nobel prizewinner, is STILL paying absolutely no attention to it despite the fact that the Fed’s Z1 statistics quite clearly underline what the Fed has been doing and why it is going to stop doing it sooner or later.
It doesn’t even make sense to claim that the reason the economy is depressed is because many policy makers forgot that job creation is their most urgent task. What does that even mean? Government policy doesn’t create productive wealth-producing jobs; the most it can do is create incentives to move such jobs from one place to another.
But that’s a tangent to be explored another time. For me, the most remarkable thing is that Bernanke is practically pointing to the giant credit pyramid and the leading lights of the mainstream media are STILL pretending that the vast, crumbling edifice is of no significance whatsoever… even as they openly express their concerns about the damaging effect of rising interest rates. Krugman’s position isn’t merely wrong, it’s entirely incoherent.