June 16, 2009 – 12:46 pm

Keynesian economics was developed to provide academic cover to a theory so blatantly flawed as to render it defenseless under any ordinary attack of sound logic. But surrounded since it’s inception by layers of PhD s and volumes of Fed speak, until recently no one dare see through the emperors new clothes. It is doubtful though that any Keynesian actually believes any of it, anymore than the disciples of Leo Strauss believed in weapons of mass destruction or links to al-Qaeda in Iraq. Yet it was Strauss’s theory the Neo-Conservatives crawled under for intellectual cover, a necessary ingredient to excuse the inexcusable before the commission of a crime and vital to forgive thew unforgivable if it goes awry afterwards. Under his theory Strauss proclaimed religion could be used to endorse

,… “noble lies”: myths used by political leaders seeking to maintain a cohesive society.

Our leaders had always been lying Strauss a notable professor from an elite university provided a thin veil of academic legitimacy for the liars to rely on. The pseudo theory was just a fig leave too small for cover until there was a panic, the panic making the fig leaf was just big enough fit. And making it a Zionist endorsing religion, believing in neither, but using both who’s ideas formed the intellectual basis to push a nation to war for the riches of it’s corporate and political elite.

Although Strauss espoused the utility of religious belief, there is some question about his views on its truth.[17] In some quarters the opinion has been that, whatever his views on the utility of religion, he was personally an atheist.

Political Zionism is problematic for obvious reasons. But I can never forget what it achieved as a moral force in an era of complete dissolution. It helped to stem the tide of “progressive” leveling of venerable, ancestral differences; it fulfilled a conservative function.

In the same vein the bedrock of Keynesian theory is so distorted that upon it can rest only a ruse. The pretense of an academic theory, whose true intent is to anoint a criminal central bank with the academic legitimacy necessary for the sanction to print money from nothing, conferring upon it the unseen power to master us all. How else could a global economy run on a system which rewards the producers of nothing with everything of every value and price or priceless? A Keynesian ideology stealthily infatuated with Fascism, Fascism being defined as the unity of corporate and political power, itself a fig leaf for a mad dictator.

Keynesian economics (also called Keynesianism (pronounced /ˈkeɪnziən/) and Keynesian Theory) is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1]

But the central bank is a cartel of private banks so Keynesian really means corporate control of state controlled assets and power i.e. Fascism. And despite the despicable rhetoric to the contrary the reality now shows it is a foregone conclusion that monetary policy actions directed by a central bank and fiscal policy actions by the government are doomed to destabilize the economy as fast paced economic growth slams headlong into a brick wall of debt.

The ability to sustain high rates of economic growth, decreed by governments and central bankers, is questionable. The aggressive increase in debt globally resulted in a sharp increase in sustainable growth rates, wherein $4 to $5 of debt was required to create $1 of growth. Approximately half the recorded growth in the US over recent years was driven by borrowing against the rising value of houses (mortgage equity withdrawals). As the level of debt in the global economy decreases, attainable growth levels also decline.

Meanwhile with the dollar on the event horizon of implosion the central bank mass monetizes it’s fictional notes and prepares another $3.25 Trillion ripoff of the true producers of the nation’s wealth, while driving the nation deeper into it’s debt under the guise of fiscal stimulus.

Federal Reserve boss Ben Bernanke is getting ready to pull another rabbit out of his hat and he’s hoping no one figures out what he’s up to. Here’s the scoop; the Fed chief needs to “borrow up to $3.25 trillion in the fiscal year ending Sept. 30” (Bloomberg) without triggering a run on the dollar.

Desperate to see you look anywhere other than at the man behind the curtain, just as the Neo-cons employed Strauss the bankers use the Noblest liar of them all to apply a Keynesian smoke screen, and keep the specter of debt behind the curtain, unseen. Paul Krugman sounding like another one of Strauss’s madmen, implores you to Stay the Course, even if it sends you with the dollar off the cliff. And while Krugman advocates for the benefits of inflation as though he doesn’t know what he’s talking about, it’s what he’s not talking about that is the Fed’s real trap.

The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it’s déjà vu all over again — literally.

That’s right it is déjà vu all over again — literally. The predictable yet ominous policy is to blow another bubble to delay the shock wave of the bursting housing bubble, that bubble was itself a buffer from the dot com blow up. Both of them Keynesian magic tricks, pulling rabbits from hats, but smaller and smaller rabbits from smaller and smaller hats.

For this is the third time in history that a major economy has found itself in a liquidity trap, a situation in which interest-rate cuts, the conventional way to perk up the economy, have reached their limit. When this happens, unconventional measures are the only way to fight recession.

When this happens conventional reasoning rather than wisdom shows what we have known for a long time now. Namely that we are insolvent not ill liquid. Forcing banks at gun point to take TARP dollars and forcing at gun point to lend those dollars may bring a short term relief to rates, but insolvency lingers ever after.

Yet such unconventional measures make the conventionally minded uncomfortable, and they keep pushing for a return to normalcy. In previous liquidity-trap episodes, policy makers gave in to these pressures far too soon, plunging the economy back into crisis. And if the critics have their way, we’ll do the same thing this time.

Such unconventional measures should make any right thinking person uncomfortable, begging the question, why aren’t you, Paul?

The first example of policy in a liquidity trap comes from the 1930s. The U.S. economy grew rapidly from 1933 to 1937, helped along by New Deal policies. America, however, remained well short of full employment.

New Deal policies drove America deeper into debt, in debt to the Fed, to get out of debt, the nation borrowed more from the Fed, to be repaid by the income tax. Not a liquidity trap, but a debt trap an inescapable one at that.

Yet policy makers stopped worrying about depression and started worrying about inflation. The Federal Reserve tightened monetary policy, while F.D.R. tried to balance the federal budget. Sure enough, the economy slumped again, and full recovery had to wait for World War II.

Policy makers created the great depression on purpose, first by inflation, then by deflation. And despite your implication that a balanced federal budget caused an economic slump F.D.R. never tried to balance the federal budget. If he had he would have burned the Fed’s dollars and gone to a real gold standard, instead he kept the Fed money and illegally confiscated the gold. Moral hazard aside debt was the result.

The second example is Japan in the 1990s. After slumping early in the decade, Japan experienced a partial recovery, with the economy growing almost 3 percent in 1996. Policy makers responded by shifting their focus to the budget deficit, raising taxes and cutting spending. Japan proceeded to slide back into recession.

Japans currency and economy were devalued so Wall Street could apply it’s carry trade for two decades of arbitrage ripoff of the Japanese economy. But it wasn’t Japan that printed mounds of Yen to bailout it’s failed financiers, Zimbabwe did that, and their inflation is in the millions of percent per day, there is the valid comparison.

And here we go again.

On one side, the inflation worriers are harassing the Fed. The latest example: Arthur Laffer, he of the curve, warns that the Fed’s policies will cause devastating inflation. He recommends, among other things, possibly raising banks’ reserve requirements, which happens to be exactly what the Fed did in 1936 and 1937 — a move that none other than Milton Friedman condemned as helping to strangle economic recovery.

Well it’s more like you just keep on being wrong.

[Of course the rigid ideology responsible for our latest brush with economic disaster is, in fact, Krugman’s. Back in 2002, like so many economists he was panicked about a fall in consumer spending. So he favored using inflation to create a housing bubble in the first place. Oops.]

But that never stoped Krugman in service of his masters.

Meanwhile, there are demands from several directions that President Obama’s fiscal stimulus plan be canceled.

Some, especially in Europe, argue that stimulus isn’t needed, because the economy is already turning around.

Others claim that government borrowing is driving up interest rates, and that this will derail recovery.

And Republicans, providing a bit of comic relief, are saying that the stimulus has failed, because the enabling legislation was passed four months ago — wow, four whole months! — yet unemployment is still rising. This suggests an interesting comparison with the economic record of Ronald Reagan, whose 1981 tax cut was followed by no less than 16 months of rising unemployment.

O.K., time for some reality checks.

The reality is that every dollar the bankers at the Fed pull from the darkness is a dollar Joe and Jane taxpayer must repay with real sweat and toil. What could the Fed bankers like more than to drive the United States hopelessly into their debt, by lending not money just the illusion of money. When the money comes from nothing, it’s not liquidity, but debt that results.

First of all, while stock markets have been celebrating the economy’s “green shoots,” the fact is that unemployment is very high and still rising. That is, we’re not even experiencing the kind of growth that led to the big mistakes of 1937 and 1997. It’s way too soon to declare victory.

What about the claim that the Fed is risking inflation? It isn’t. Mr. Laffer seems panicked by a rapid rise in the monetary base, the sum of currency in circulation and the reserves of banks. But a rising monetary base isn’t inflationary when you’re in a liquidity trap

But we aren’t in a liquidity trap,

America’s monetary base doubled between 1929 and 1939; prices fell 19 percent. Japan’s monetary base rose 85 percent between 1997 and 2003; deflation continued apace.

Well then, what about all that government borrowing? All it’s doing is offsetting a plunge in private borrowing — total borrowing is down, not up. Indeed, if the government weren’t running a big deficit right now, the economy would probably be well on its way to a full-fledged depression.

Debt is not the answer! Government borrowing, is government debt paid with interest by the personal income tax. Paul won’t tell so we will, that’s private debt. Indeed, if the government weren’t running a big deficit right now, the economy would never have come close to a depression and if we had rid ourselves and the government of debts burden the economy would certainly be well on its way to a full-fledged recovery, as in 1921, the depression no one remembers. For all his genius the only ideas Krugman can come up with is to go deeper into debt to pay the debt we cannot pay now, doesn’t work with personal finances and doesn’t work with national economy either.

Oh, and investors’ growing confidence that we’ll manage to avoid a full-fledged depression — not the pressure of government borrowing — explains the recent rise in long-term interest rates. These rates, by the way, are still low by historical standards. They’re just not as low as they were at the peak of the panic, earlier this year.

To sum up: A few months ago the U.S. economy was in danger of falling into depression. Aggressive monetary policy and deficit spending have, for the time being, averted that danger. And suddenly critics are demanding that we call the whole thing off, and revert to business as usual.
Those demands should be ignored. It’s much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.

To tell the truth: Aggressive monetary policy and deficit spending have, blew up the housing bubble. It is precisely that bubble burst which threatens the U.S. economy with depression. The policies Krugman supports are the ones that brought us to the edge of the abyss, and the only ones which can push us over if followed. It is past time we stop doing what got us here in the first place.
 
Paul Krugman is on a Sherman’s march to crash the economy into a wall of inflation and bury the nation in imaginary debt to the Federal Reserve for eons. The bankers dream the peoples nightmare, a cradle to grave debt trap. The only possible way for this to occur is to fall into Krugmans debt trap.

“…,the same Keynesian clowns who were calling for a housing bubble to bail out the Nasdaq stock crash are now calling for another even bigger stimulus package to bail out the housing bubble that crashed.

Krugman says “It’s much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.”

The irony is the policies Krugman espouses are exactly what threw us over the edge of the abyss in the first place.

Yes Paul, it is indeed déjà vu all over again – literally. And the sad thing is neither you nor McCulley have learned a damn thing from it either.