On what planet was Krugman born?

First, Krugman argues that debt isn’t a problem.

(adjusts eyeballs back into sockets…)

Second (and woe to us), Krugman argues that more important than fundamentals is “confidence” in the political system.

So what determines confidence? The actual level of debt has some influence – but it’s not as if there’s a red line, where you cross 90 or 100 percent of GDP and kablooie; see the chart above. Instead, it has a lot to do with the perceived responsibility of the political elite.

What this means is that if you’re worried about the US fiscal position, you should not be focused on this year’s deficit, let alone the 0.07% of GDP in unemployment benefits Bunning tried to stop. You should, instead, worry about when investors will lose confidence in a country where one party insists both that raising taxes is anathema and that trying to rein in Medicare spending means creating death panels.

The fundamentals blow donkey dick.  Now, the man is arguing for confidence in the political system?  

Let’s have a look at that 9 mm, thank you.  It fits in my mouth perfectly.  Sure, put it on my credit card!

18 comments

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  1. You have to stop looking at money (including gold) as if it has value.

    It doesn’t.

    It’s just scraps of paper, shiny bits of metal, or electrons in a database.

    What provides the illusion of value is that people will accept it and in return give goods and services, in short confidence.

    So debt doesn’t matter as long as people keep giving you goods and services.

    There is a saying- owe me $10 and you’re a deadbeat.  Owe me $10,000 and you’re a valued customer.

    And that’s the way it is between the US and the people who hold our Treasury Notes.  If they stop lending to us and undermine the value of those notes they’re not doing anything except destroying their own assets.

  2. ….. of an academic, don’t get too worried by it.  

    Space. the final frontier.

    Debt’s existed all along.  What bankers do to create more debt so they can harvest the assets of the peons is the important part.  Where the system got out of whack was with Bush’s era of rapacious non regulation and greedy financiers harvesting too much.  The war financing was done by having a lot of real estate appraised way too high so loans could be given on it so the books looked like the banks owned a lot of expensive assets….

    whoops!   BOOM went the economy.

    Because the PNAC flunkies thought that the war should stimulate the economy quite a bit and make them all rich.  They still do.  I suspect Obama thought he could appease the war machine beast his first term and then do whatever he wanted.  It doesn’t work like that.  Think about the motto of the military-  they go in to blow things up.

    BOOM, mission success !

    Another big real estate blowout coming, on commercial real estate. Hold onto your biscuits!

    Krugman will cycle back over to sounding more rational in another week or 2.

    And please put the personal weapons references away. : (

    • banger on March 8, 2010 at 11:29 pm

    I think economic well-being is strongly connected to confidence. That’s why the MSM is so reticent on publishing facts about our current condition. They want people to believe that things will improve and if they have to throw out a little fiction — why not?

    My sense is that people are nearly desperate and want to believe that prosperity is just around the corner and that we all just need to try harder. Who wants to believe that their pockets have been picked.  

  3. When people lost confidence in the system, they ran on every bank, driving the entire system to break down into rubble.

    The point that Krugman is making is that people drive the economy and if confidence remains stable, not even HIGH, just STABLE, then the economy can be stable.

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