Deficit Wisdom, Then &amp; Now

Deficit Wisdom, Then & Now

Nick Gillespie | November 30, 2009

Who said the following? "My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar."

Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina's (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was "deficits that saved us," and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.

History strongly supports the proposition that major financial crises are followed by major fiscal crises. "On average," write Carmen Reinhart and Kenneth Rogoff in their new book, This Time Is Different, "government debt rises by 86 percent during the three years following a banking crisis." In the wake of these debt explosions, one of two things can happen: either a default, usually when the debt is in a foreign currency, or a bout of high inflation that catches the creditors out.

That's Niall Ferguson writing in Newsweek. Read the whole thing here. For those keeping score, the U.S. deficit for fiscal 2009 was over 11 percent of GDP and the highest it's been in 60 years.

Hat tip: Instapundit.

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Fist of Etiquette|11.30.09 @ 9:33AM|#

Newsweek said that?

|11.30.09 @ 9:50AM|#

"The Right People in Charge" or some such bullshit....

|11.30.09 @ 9:55AM|#

Speaking of party in power:

http://www.cato-at-liberty.org.....in/?123123

|11.30.09 @ 1:08PM|#

Sadly, its all one big party and we citizens are just their meal.

|11.30.09 @ 10:21AM|#

Woo, Reason! Go for the "Krugman's a douche" trifecta!

Rub My Balls|11.30.09 @ 11:42AM|#

Fish in a barrel.

|11.30.09 @ 10:23AM|#

Anybody have any numbers on what the service on the debt is going to be over the next twenty years? I read somewhere that in five years it will be half a trillion per year.

Also, how much TIPS are we selling? Inflation protection takes away the ability to monetize the debt and makes default inevitable.

Rub My Balls|11.30.09 @ 11:43AM|#

That's about right according to Glen Beck.

|11.30.09 @ 10:35AM|#

Well, one thing we all know for sure, Wisdom is a good thing!

RT
www.be-anonymous.cz.tc

JB|11.30.09 @ 10:44AM|#

Put your money into guns and ammo before the money is worthless.

alan|11.30.09 @ 10:54AM|#

ABC had a story on the debt borrowing a few weeks back that made me give a thankful wow because it was the first time in the MSM I saw this pointed out: not only does the debt lower the living standards of upcoming generations of Americans, but it lowers the living standards of Chinese peasants in the here and now.

Obama starves Chinese babies (and so does your congressman too).

|11.30.09 @ 11:07AM|#

Fortunately, our totally independent Fed will take no notice whatsoever of the increasing costs of (National) debt service when it becomes time to raise interest rates.

|11.30.09 @ 11:08AM|#

Krugman wants a transaction tax on investments. There's your trifecta.

|11.30.09 @ 11:12AM|#

Woo!

|11.30.09 @ 11:20AM|#

Now, all we need is a Naomi Klein post. Then we can have dueling douchebags completely disowning their previous doom and gloom prognostication and predicting what will happen, this time, trust us!, with the right people in charge.

juris imprudent|11.30.09 @ 11:21AM|#

Krugman caught speaking out of both sides of his mouth.

In other news, the sun rose in the east this morning.

alan|11.30.09 @ 11:36AM|#

Yesterday, on This Week, the first topic was the troop build up, and Krugman emphasized the need for paying for it with a tax in the here and now, next topic he advocates for another stimulus and a New Deal type work program, and the next he explains why in his view deficits don't matter.

works program - put it on my card!

pork and public service union job protection -- put it on my card!

war funding -- ask those guys in line behind me if they can pull together their loose change.

BakedPenguin|11.30.09 @ 11:33AM|#

I'd have to agree. They haven't gone up as much as gold has. Also, if you can afford it, and can invest long-term, real estate. Eventually, land / houses / apartments / comm'l property will be worth something again.

Rub My Balls|11.30.09 @ 11:45AM|#

Gold has never been more expensive. Must be a great time to buy some.

NAL|11.30.09 @ 11:45AM|#

I think Krugman is schizophrenic. Seriously, I really think the man is psychologically impaired.

|11.30.09 @ 11:45AM|#

Buy a warehouse, and fill it with whiskey, guns and cigarettes.

Early Cyler|11.30.09 @ 12:33PM|#

Don't forget beer. Whiskey makes my cornflakes soggy.

|11.30.09 @ 12:29PM|#

My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

See, Krugman's OK with these actions by RESPONSIBLE administrations, such as, oh, a Democratic one headed by Obama. He just doesn't want irresponsible administrations, which coincidentally all are run by Republicans, to do that.

Perfectly logical.

|11.30.09 @ 2:16PM|#

"~~Gold~~ Pets.com has never been more expensive. Must be a great time to buy some."

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