Monday, October 18, 2010


Paul Krugman thinks we need more QE.  Not just a little bit more.  About 8-10X more than current projections!  Richard Koo’s head must be spinning.  No, no, we haven’t failed, it’s just that we haven’t tried hard enough!   Krugman’s idea is the equivalent of a shopkeeper who thinks he can scream about the loads of new apples he is putting on the shelves while creating a stir in the marketplace that will ultimately result in higher sales.  It won’t work in the long-run.

Of course, this is all very ironic given Mr. Krugman’s most recent commentary regarding Mr. Bernanke’s lecturing of Japanese officials:

“American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing.”

Mr. Krugman used to lecture the Japanese quite a bit.  In a 1999 piece Mr. Krugman discussed the ways in which QE could help the Japanese economy.  He wrote:

“Quantitative easing: There has been extensive discussion of “quantitative easing” , which usually means urging the central bank simply to impose high rates of increase in the monetary base. Some variants argue that the central bank should also set targets for broader aggregates such as M2. The Bank of Japan has repeatedly argued against such easing, arguing that it will be ineffective – that the excess liquidity will simply be held by banks or possibly individuals, with no effect on spending – and has often seemed to convey the impression that this is an argument against any kind of monetary solution.”

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