Sunday, May 31, 2009

Re Krugman: Inflation Fear-Mongering Is A Right-Wing Plot

Comment from AdamS, who takes issue with this sentence: " ... the Fed isn't printing money, as we, and others, keep saying. ... "

AdamS: "Rubbish. Do you dispute that the bailout was over ten trillion dollars in newly created money lent out at interest?"

Yes, I do. This is a distortion (setting aside the fact that the function of the Fed is to print money anyways) that turns the federal purchase of treasury bonds and other economic instruments into "newly created money," supposedly, and hobbling the recovery with hyper-inflation.

If you insist on the "creation of new money," point out the ensuing inflation to me. Show me. It doesn't exist. Deflation rules, in fact.

The quote was from Paul Krugman of the NY Times, who explains one source of the bailout money. I've also attached information from other sources to explain how this right-wing distortion - that the Fed is simply printing bales of worthless paper to save Wall Street - is false:

From "The Big Inflation Scare," by Paul Krugman, NYT, 5-28-09:

" ... Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.

"The first story is just wrong. The second could be right, but isn’t.

"Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.

"But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all. ... "
Creating money is not the same as buying bonds, and note here that informed sources - eg. the Chinese government - make the proper distinction:

China warns Federal Reserve over 'printing money' - "China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds. ... "
Loans, not New Paper

" ... the so called 'liquidity' injected by Fed into Banking system is NOT newly printed money. It is LOANS! Look it up in the dictionary, "Loans" have to be paid back! ... "
T Bills

"The Feds are not creating money, they are selling Treasury Bonds or “T BIlls” on which they pay as little as .75% interest. In other words the Feds are not printing money, but sopping up funds owned by others, e.g. private investors who are putting their money into cash.”
So who says that the Fed is recklessly "printing money," anyways? Try Rupert Murdoch's Wall Street Journal, a "conservative" spin machine: "Federal Reserve's move to print money shows perilous policy failure." The allegation is a right-wing plot to subvert Obama and economic recovery. If it fails, the GOP wins. That's how they see it. Rush Limbaugh openly admitted as much. Conclusion: Republicans are seditious liars and the "rubbish" piles up around them, not Paul Krugman.

- Alex Constantine

1 comment:

AdamS said...

Thanks for your response.

It is true that loans have to be paid back :) But where did the Fed get the money from to loan it out in the first place (to buy bonds) if not by creating it?

I'll let an economist take over from here:

A good resource on the creation of fiat money:

I would also recommend "Fiat Empire", a good film dealing with this issue.

It is a shame that you believe everything is a plot against Obama and the 'left'. I've got nothing against Obama save for what he has done, but more importantly what his handlers over at the Fed, CIA, MIC etc etc have been doing for decades.

More importantly, I hold equal contempt of the controlled right as I do the left. It's not 'rightwing propaganda' to say that spending three trillion dollars that must be paid back by the next generation, is a recipe for disaster.

Even if the bailout wasn't new money, as you claim (we haven't seen hyperinflation yet, but with all that fiat liquidity floating around it could impact any day), it is certain that the stimulus is new money (though it will be called 'borrowing' since govt lends it from the Fed, who create it at the push of a button) and it is going into the real economy.

As for government and central banks 'repairing' the free market like our TV news tells us...well I'm not convinced that freedom was the problem in the first place, I think they were the problem (fractional reserve and so on).

BTW, I didn't know who you were until I googled your name and it turns out you're a prolific researcher! lol I had no idea, props to you, keep exposing the scum of the earth ;)