Bits and Bigotry

After several embarrassments, Krugman makes another rather sad attempt to cover Bitcoin which according to him “is a digital currency that has value because … well, it’s hard to say exactly why”.

Indeed, he wouldn’t be amongst my favorite economic idiots if his ignorance on the “why” and in fact on the entire protocol, process, and purpose behind mining, were to keep him from boldly declaring that with Bitcoin “we are for some reason digging our way back to the 17th century”.

And just by the by: If someone tries to lecture me on the supposed “barbarism of gold” without showing me that he has had the capacity, rigor, or curiosity to do even the most basic research into the unspeakable and unprecedented genocides, world wars, civil wars, and destruction brought about by fiat money central banking systems, then I cannot possibly take that person serious for even just a second.

What an embarrassment for mankind to still have mental garbage of this kind roaming the web and how beautiful to see Bitcoin slowly but surely push it into complete and total irrelevance.

Just keep diggin’ that pit, Paul.

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Who Understands Debt?

I’ll be commenting on the following statements, posted by a writer on the New York Times in a blog post titled Nobody Understands Debt:

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

But the government HAS been running deficits!

This just as a sidenote:

Actually the US government is, has been, and is planning to continue to be running record deficits above $1 trillion:

The total public debt has more than tripled since 2000!

So technically, according to this guy it should all be good, right?

Any serious scientist proposes a null hypothesis.

What’s his null hypothesis?

How much longer should the government follow his policy recommendations before he’ll stop and wonder if
maybe they are aggravating and prolonging the economic crisis in the US?

How much did all this debt help rid the US of unemployment? Didn’t unemployment rather rise alongside the debt? In spite of corroborating data like that, I’m not even claiming that there necessarily is a direct correlation. But the author above obviously claims that there is a correlation in the other direction. If he thinks so, wouldn’t it make sense to have a curious and open discussion about such contradicting data, if he were serious in his pursuit of the truth?

Is it not at least reasonable food for thought to propose the that the public debt doesn’t seem to be a cure against unemployment, that maybe the problem needs to be tackled elsewhere?

Anyway …

What are the problems with the public debt?

The author conveniently picks all the wrong amateur arguments against the public debt to shoot down, and ignores the accurate ones.

The problem with the public debt as I see it, is that, even if “we” were completely indebted to “ourselves” (note the grade A sophistry in such imprecise analyses), the working population is over time more and more on the hook to rich investors and politically connected bankers who just lean back and let the IRS collect for them.

While there may be some small retirees receiving interest payments (which is also unfair because those young people who will be funding their retirement never had any say in the matter), there is a significantly larger percentage of foreign and domestic big time investors who get to collect from people who never had a say in the debt they now need to pay off.

Just look at the Federal Reserve as one example. What do you think happens with all the revenue they earn from interest payments?

People like this author here will likely tell you “It’s all good because it’s all paid back to the Treasury”.

Well, that’s just pure and lazy sophistry!

What’s paid back to the Treasury is the Fed’s PROFIT, which is a more or less negligible sum after all the Fed’s board members, employees, contractors, partners in holding companies held by the Fed, and shareholders have been paid off.

Guess who the Fed’s shareholders are? It’s the big national banks, receiving a handsome preferred dividend every year.

And yes, they can rollover debt for as long as interest rates are low. I may note that I have consistently and correctly predicted record low Treasury rates for years to come. (Just by the by: I don’t know that the author above has ever made such a prediction, except when rates were already way low which doesn’t make it a prediction since it’s already happened. In fact he actually predicted sky rocketing rates and complete fiscal doom back in 2003 with the public debt at a third of today’s level, but then … it’s not like I ever expect consistency and sound methodology from biased academics on either side of the political aisle.)

All these low rates will do is allow the debt to get even more bloated. And interest rates won’t remain low forever, as you can see in Greece and similar situations. Did people like the above author see any of those sovereign debt crises coming?

What about Japan? Their debt is the most crushing of all industrialized nations, and I’m predicting that their time of low rates will be drawing to an end any day now, with their debt and pension crisis having entered its final stage. Then what?

They have been running deficits for two decades, people like this author ought to love what they did. Now what? … All you’ll hear is chirping crickets.

And then for someone like that to go on public record and say “Nobody understands debt.” – It’s embarrassing!

It’s the same old tired Keynesian paradigm: Debts don’t matter … until they do. And then it’ll most likely be too late.

Of course people like the above author may say: “But it’s just the rich who’re supposed to get taxed to pay off the debts.”

Yeah right, the rich people who bribe all the politicians in charge will let that happen, that’s the way of the world in the hazy deluded minds of state tenured academics … get real people!

For a more detailed analysis, read my post What’s the Problem With Government Budget Deficits?, I’ll just post its conclusion here:

As I explained, the ultimate damage caused by public budget deficits occurs at that point in time when taxpayers are forced to restrict their consumption and unjustly bear the cost of malinvestments from the past.

Ironically, when you look at the political stage, all you will hear in regards to “solutions” to deficits in the end, will for the most part be tax hikes. These are not solutions. They are the ultimate manifestation of the very problem at hand. They are, in fact, the precise opposite of a solution. Keep this in mind whenever you hear politicians talk about deficit solutions. Raising taxes to reduce deficits is absolutely and 100% an admission that one has completely failed to solve this deficit problem, and in fact laid the final brick that was missing in the very process of the public’s depredation via deficit spending.

A real solution would of course be to make investors suffer the consequences of their unproductive investments, default on the public debt, stop stealing money from people, and allow for voluntaryism to take the place of interventionism.

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Krugman Responds With More Nonsense

OK, folks. I will make this quick and easy, just because I prefer to spend my time dealing with interesting, intelligent, curious, and unbiased people.

As I wrote yesterday, Krugman said that government spending hasn’t surged. I presented numbers that show government spending in relation to all other spending, in other words, how much government involvement in all our activities has increased and it shows that it has posted the biggest rise since WW2.

Then he writes a response saying that relative numbers don’t matter and that we have to look at absolute numbers. Why that is the case of course he doesn’t bother to explain. It is because he says so. Fine, that’s nothing new from the guy. So kudos for being consistently pathetic.

So let’s make this argument as easy as possible for him. Let’s assume relative numbers don’t matter and all that is relevant is absolute numbers, completely disregarding everything else that happens in the economy. He goes on to say:

What’s going on? Yes, that’s right: it’s what happens when you divide by GDP in a time of terrible economic performance. Spending hasn’t surged; in fact, it grew more slowly in the two years after Lehman collapsed than in the two previous years, despite a sharp rise in spending on safety-net programs. Instead, GDP growth has plunged.

OK, so let’s look at absolute government spending YoY growth figures over the past 24 years:

1986 6.08%
1987 4.01%
1988 6.43%
1989 7.40%
1990 9.59%
1991 6.54%
1992 4.99%
1993 2.61%
1994 3.90%
1995 4.39%
1996 3.15%
1997 3.53%
1998 3.34%
1999 4.43%
2000 5.96%
2001 5.38%
2002 7.56%
2003 6.99%
2004 5.17%
2005 6.93%
2006 6.69%
2007 4.15%
2008 8.83%
2009 10.11%

In particular I would like you to take a look at the 2009 number, the year after the Lehman collapse. An increase larger than any during the past 24 years. Also, have a look at the two years prior to the Lehman collapse: 6.69% and 4.15%.

I repeat what Krugman said:

Spending hasn’t surged; in fact, it grew more slowly in the two years after Lehman collapsed than in the two previous years.

Naturally, he’s now gonna write a response apologizing for his mistake, as he always does when reality proves him wrong.

Haha :) Just kidding …


I hope that people don’t think I am trying to say that economic policy under President Obama is exceptionally bad. Some people seem to think that it destroys my case when they say that government spending in the past has also grown and that we are just on the normal trend.

I say: So what? All that shows is that economic policy has been consistently bad under all past presidents. I have never lauded the US’s economic policies under ueber-tards like G.W. Bush or Bill Clinton, now have I?? Whether spending grows by 10% this year, 8% that year, etc., these are all petty little minutiae, dwelled on by petty little people. I don’t even believe the President has very much pull in this whole process.

A small number of people each individually have a huge marginal interest in the growth of specific programs, while the majority of people who fund this growth, each of them at a marginally small percentage, have very little vested interest in the elimination of particular individual programs. This creates a mismatch in incentives that brings about the inevitable.

It’s the natural and predictable progression of things so long as people believe in the necessity of a government. There is nothing new, unknown, or surprising about this. There is nothing different under a black, an illiterate, or a horny president. We are being fed the same shit sandwich year after year, only that the turd gets bigger and bigger.

To see people chow down on that thing while discussing minutiae, while debating this program or that law, while factoring out TARP and adding up numbers as they see fit, while lauding this master and condemning that master …

Come on, people. It really makes you look small, silly, petty, and bigoted. Get the big picture. To hell with smallness and pettiness! Life is short and you shouldn’t waste it being a cogwheel in a machine that is bound to blow up. You owe it to your children and their progeny. Because I guarantee you, they will have a lot of questions looking back at an era that is ending ….

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Krugman’s Nonsense on US Government Growth

Government spending has grown hugely over the past 2 years (well, it also has over the past 10 years and over the past 50 years and over the past 100 years, but I’m not even gonna go there for the sake of this particular topic.)

Meanwhile unemployment keeps rising, growth remains sluggish, and the Great Depression 2.0 is in full swing.

Keynesians, at a loss to explain how the two phenomena can possibly co-exist, have to do what is completely inevitable: They need to make up an alternate reality. A fantasy world, in which their prescriptions of more government spending as the magical panacea to recessions where never tried.

In his never ceasing quest against reality, Paul Krugman joyfully continues to make fact free assertions, while at the same time accusing others of … yes … making fact-free assertions. :)

The answer to the second question — why there’s a widespread perception that government spending has surged, when it hasn’t — is that there has been a disinformation campaign from the right, based on the usual combination of fact-free assertions and cooked numbers. And this campaign has been effective in part because the Obama administration hasn’t offered an effective reply.

Actually, the administration has had a messaging problem on economic policy ever since its first months in office, when it went for a stimulus plan that many of us warned from the beginning was inadequate given the size of the economy’s troubles. You can argue that Mr. Obama got all he could — that a larger plan wouldn’t have made it through Congress (which is questionable), and that an inadequate stimulus was much better than none at all (which it was). But that’s not an argument the administration ever made. Instead, it has insisted throughout that its original plan was just right, a position that has become increasingly awkward as the recovery stalls.

And a side consequence of this awkward positioning is that officials can’t easily offer the obvious rebuttal to claims that big spending failed to fix the economy — namely, that thanks to the inadequate scale of the Recovery Act, big spending never happened in the first place.

But if they won’t say it, I will: if job-creating government spending has failed to bring down unemployment in the Obama era, it’s not because it doesn’t work; it’s because it wasn’t tried.

OK, Krugie. How about we have a look at some … you know … facts? Because, you’re absolutely right, making fact-free assertions is a bad bad bad! Here is the latest chart on total US government spending as % of GDP, that is all federal, all state, and all local expenses, even including federal grants. This chart does not include any estimates except numbers before 1948. All recent numbers are 100% finalized:


Just for the sake of 100% certainty, I am not including the projections for 2010 and the following years, but only confirmed and finalized data!

I mean, this stuff is out there, at the click of a Search button, readily available to anyone who is unbiased, curious and interested in truth and objective analysis. So why is it that a Paul Krugman would ignore it? Hmmmmmm … really really I wonder … :)

Luckily there is a very simple and uncomplicated solution … tune out from such clowns.


I will below list the most popular counter “arguments” to what I wrote above:

1. Absolute vs. Relative Figures

This is almost a given for bigots. When they see relative numbers they will tell you that spending only went up as % of GDP because GDP fell, because, you see, we are in a recession and so all the stuff I wrote above doesn’t count!!

OK, then let’s have a look at the absolute numbers, in $ billions:

2000 2,830.5
2001 2,982.8
2002 3,208.4
2003 3,432.6
2004 3,610.1
2005 3,860.1
2006 4,118.5
2007 4,289.4
2008 4,668.0
2009 5,139.9

Absolute numbers, anyone?

2. TARP doesn’t count!

Once people see that their assertion is completely wrong they will have to adjust the numbers to their liking. When reality doesn’t conform with bigoted ideas, then reality has to be modified. The inevitable outcome is that they will start excluding certain categories of government spending, with the objective of finally arriving at an adjusted number that fits in their small mental box.

TARP is a popular one because, you see, it will be paid back!

To that I can only say: That’s great! So then once it does get paid back, and Congress, in its almost infinite wisdom and fiscal prudence, decides to pay it back to the people without borrowing any more money, then I will gladly review the budget numbers at that time and be impressed by how much the budget declines in that year.

But as it stands currently, the money has been spent and pumped into circulation. So how about we observe actual, current numbers that we know of, and don’t make up an alternate reality or pretend to know the future?

I have my own predictions: I say none of this money will be paid back to the people, it will all be spent on other programs. But am I using that as part of my current argument? No. Because it is a guess, albeit one that I believe is a bit more accurate and a bit more based on economic history of, say, the past 5000 years of public finances. But I may be wrong and I would gladly stand corrected.

At any rate, such guesswork is completely misplaced when it comes to observing actual numbers.

But the good thing about a logical and consistent position is that it doesn’t matter what you throw at it. It stands on a firm and unassailable structure.

So let’s say TARP is completely irrelevant and the money is magically to be excluded from the calculation. The total actually handed out under TARP at this point is $356 billion. So let’s deduct that number, in equal proportions from the budget of 2008 and 2009, just for the sake of these people’s argument, just to try to make it as easy as possible for them:

That gives us $4,490 billion for 2008 and $4,961 billion for 2009, or 31% and 34.8% of GDP respectively.

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Paul Krugman, You Need Help!

Here is a nice takedown of Chief Keynesian Clown Paul K. written by Mish today:

Krugman’s Magic Mirror

Clearly one of us is wrong. But whom? Perhaps this image can help.

Throwing money at problems never works in the long run.

Japan tried that and now has debt to GDP of 200%. Because of its aging demographics, Japan is in serious trouble as soon as interest rates rise. Japan will not be able to finance its monstrous debt nor will it be able to grow its way out of the problem. Such is the nature of compound interest and unsustainable levels of debt.

Likewise, the US tried to spend its way out of the 2000-2001 recession.

Greenspan’s policies seemed to work, but it was nothing but an illusion. The real economy was taking a nosedive even as financial assets soared. It was a nice party, as all Keynesian parties are, but in the final analysis all Greenspan and Bernanke accomplished was to dig the deepest debt hole mankind has ever seen. The housing and debt implosion of 2007-2008 was the direct result.

Now Paul Krugman thinks it’s too early to shut off stimulus.

Hello Paul!

It will always be too early for you. There is no recovery nor will there ever be a recovery until there is genuine demand for goods and services at prices set by the free market not the government.

When the problem is debt, going deeper in debt cannot possibly be the solution.

Yes, Paul, we lost a decade. Yes, Paul, we are going to lose another, not because we failed to follow your recommendations, but precisely because we did!

We had a chance to write off the debt and to let the insolvent banks go under. Instead we wasted over a trillion dollars bailing out banks that still are not lending (and wisely will not lend) because we never purged the debts that needed to be purged nor did we reduce rampant overcapacity.

We could have and should have forced the bondholders of Citigroup and Fannie Mae to take a hit. Instead, taxpayers who cannot possibly afford it, bailed out wealthy bondholders.

In addition, we tried all sorts of Keynesian nonsense like cash-for-clunkers and an$8,000 tax credits for houses. As soon as the tax credit expired housing went in the gutter. It is about to do so for the second time.

Bernanke will not know what hit him even though it is point blank foolish to stimulate housing when there is an ocean of housing oversupply already.

By the way, how many roads can you pave? We paved roads in our area that did not even need to be paved. Now fooking what?

This is exactly the mistake Japan made. Yet you want to repeat it with more absurd makeshift work.

The stimulus money is nearly out and you want more. You will always want more for the simple reason there is no real demand for goods and services, only an illusion of a recovery that comes from passing out “free money”.

When you look in a mirror you see the illusion, what you should see is a Keynesian warthog. Substitute the words “Keynesian Economics” for “Real Economy” on that hag, and the picture is perfect.

As Europe found out, the will and the means to pass out “free money” is 100% guaranteed to end before a lasting recovery can take hold.

That dear Paul, whether you like it or not, is the mechanics of peak debt, compound interest, global wage arbitrage, and something you desperately need to learn: Austrian economics.

Recommended Reading List

Paul, you need help. I suggest a few books on my recommended reading list.

I couldn’t agree more, those are excellent reads indeed.

Paul, you need help!

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