Mr. Krugman's Science, Part 5: the Reconciliation

While Mr. Krugman is certainly annoying and highly misleading (as Bob Somerby said about other New York Times columnists, "We are where we are because of these people."), I certainly bear no animosity toward Paul Krugman.  I actually think his approach is "right;" it's just that I don't think any of the reasons he advances are the true rationale for following his advice. 

We should keep the Potemkin village of the American economy going for as long as possible. Printing money, letting the Federal Reserve "buy" up the "debt" of the U.S. Treasury (the government agency which keeps its checking account at the Federal Reserve), and pumping hallucinated money into the stock and housing markets in an effort to reinflate the Bubbles.  The "transmission mechanism" the Fed uses to move money into the economy only indirectly and partially reaches the American commoners, and this is the reason that inflation, as measured by the Consumer Price Index, remains "muted."  Hyperinflation is the great fear of the central banker who begins playing games with a fiat currency, and Bernanke (a kind of financial mad scientist) believes that he has found a way to confine inflation where he wants it, in the stock and housing markets.  I believe he's dead wrong, and that there is an underlying financial "thermodynamics" based in the interlocking fiat currency system of the globalized economy which is far too complex for the central bank of one country, even the country with the largest economy and the site of the "reserve currency," to control indefinitely. 

Mr. Krugman's putative approach, that we should keep printing money and "borrowing" (largely from ourselves), and then balance the books "later" is the purest kind of moonshine.  Mr. Krugman says such things so that he can be regarded as one of the Very Serious Persons he spends his time lampooning.  You can't be taken seriously if you urge the party crowd in the main ball room of the Titanic to keep dancing and swilling champagne as the bow of the ship tips ominously downward; you have to advise the government to maintain the status quo "for now" until the "recovery" is complete.

That's where Mr. Krugman loses touch with reality. There isn't going to be any recovery to some mythical "trend line" derived by drawing a ruler through data points created by previous bubbles.  What Mr. Krugman apparently can't see is that the American economy has been sagging relentlessly (like a birthday balloon found two weeks later on the floor behind the couch) since about 1973, when we first began losing control over our domestic energy sources (meaning: oil), and subjected ourselves to the global economy (that monstrosity that Tom Friedman has always been so excited about, in his moronic way: "We are where we are because of these people...").  Now we're in a life and death struggle with the developed world (Europe, Japan, Canada, Australia) and the rapidly developing world of China, Russia, India, Brazil, South Korea, Southeast Asia, and they all want the same things we want: an opulent living standard just like America.  The world cannot support that, and we have placed our fate at the mercies of these competitors who intend to use every edge they can find to overtake us.

Mr. Bernanke is using his hole card, the reserve currency, and he's going all in, hallucinating money like a man possessed of strange visions.  And why the hell not?  Does he think there is actually a pot of gold at the end of this rainbow he's painting in the sky?  I doubt it (he's much smarter than Krugman).  But if we can derive a few more years, or whatever time, maintaining our Potemkin existence at something like its present level by means of these machinations, why shouldn't we?  As Mr. Krugman is fond of saying, the economy is "not a morality play."  Is this a somewhat sociopathic statement?  You can look at it that way; the point, however, is that we're going to get to that point of collapse one way or another, so why would we hurry it along with a premature act of self-annihilation?

If we suddenly withdraw 40% of the funding from the federal government, and stop goosing the stock and housing markets with hallucinated money from Bernanke's asshole corner computer,  we will bring on pandemonium.  This crazy wish to be all "tidy" and "balanced" is nuts.  Do what Krugman says,  "kick the can" down the road (his very words on Friday).  Mint that "trillion dollar coin."  Play any game you can think of to keep the party going.  You put on another stack of CDs and roll up the carpet.  I'll go out and buy a few more cases of Veuve Cliquot.