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by
Stephen Green

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March 11, 2013 - 10:23 am

Here’s what the Nobel-prize winning economist has to say about another year with a nearly trillion-dollar deficit:

So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.

There are, of course, longer-term fiscal issues: rising health costs and an aging population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now. And as I said, given the needs of the economy, the deficit is currently too small. [Emphasis added, for laughs.]

Krugman says all the big borrowing is hunky-dory because of “low borrowing costs.” But they won’t stay there.

You borrow money to buy a car or a house — large, infrequent purchases. If you put day-to-day expenses on the credit card, month after month, eventually you’re going to run into trouble. Especially if that card starts at a low introductory rate, which will shoot up after a year or three.

Well, in the last four years or so, Uncle Sam has put $6,000,000,000,000 worth of day-to-day expenses on the Visa. Interest rates are low, in no small part because the Fed is keeping them there artificially, with “Operation Twist.” Kind of like having a friend at the bank willing to put in a good word for you. Krugman dismissed fears of rising rates (“the deficit scolds have been wrong about everything so far where are the soaring interest rates we were promised?”), without mentioning Ben Bernanke’s role in preventing them from rising. Also, the dollar remains a panicked saver’s last refuge, but that could change in a heartbeat.

The other thing Krugman doesn’t tell you is that rates will rise, once the economy really recovers. When that happens, our near-zero rates will float (it is hoped) or jerk (it is feared) up historically normal levels of 5% or so. At 5% — which is still not high — our credit card payment triples to about $700,000,000,000 a year, each and every year, forever. That’s bigger than defense, bigger than Social Security, bigger than Medicare. And it’s going to happen. It’s baked in. There’s no escaping it. Because smart, award-winning men like Krugman assured us it would be OK.

That’s a seven followed by eleven zeroes — plus whatever we add to it, each and every year, forever, because Washington is addicted to debt. And Paul Krugman is the pusher.

Stephen Green began blogging at VodkaPundit.com in early 2002, and has served as PJMedia's Denver editor since 2008. He's one of the hosts on PJTV, and one-third of PJTV's Trifecta team with Scott Ott and Bill Whittle. Steve lives with his wife and sons in the hills and woods of Monument, Colorado, where he enjoys the occasional lovely adult beverage.

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All Comments   (12)
All Comments   (12)
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James Hamilton has the technical analysis: http://www.econbrowser.com/archives/2013/03/does_the_us_ris.html

Does the U.S. risk a fiscal tipping point?

"It is important to recognize that we are not proposing that creditors will all of a sudden refuse to hold dollar-denominated assets. The question instead is whether demand for U.S. Treasury debt will continue to increase every year faster than the U.S. economy can grow.

It is also important to emphasize that we are not claiming that the blue path above is an accurate prediction of what is going to happen, and we certainly hope that it does not. As we wrote in the Wall Street Journal on Friday"

And follow up post:

Why I'm more worried than Paul Krugman about the U.S. debt burden

http://www.econbrowser.com/archives/2013/03/why_im_more_wor.html

One thing no one notices is that growth paradox. It may be that growth would drive up interst rates and or inflation. But inflation would drive up interest rates. Growth would likely drive up one or both. The consequences of interest rate increase even to 5.2% used by James essentially preclude growth, so we can expect to see none of the above. And of course, low inflation and interest rates are great reasons to borrow and (for some reason I can't fathom) spend.
1 year ago
1 year ago Link To Comment
Connor is my grandson. He will be 15 months old next Saturday. Connor owes $53,137.36 to America's creditors. So does his sister Kate. And so do his cousins Ben and Tommy.

So do your grandchildren.
1 year ago
1 year ago Link To Comment
Krugman has an interesting economic theory that seems to go something like this:

Wait to see what people who disagree with you SAY will happen, and then call them wrong when it doesn't happen right away. When what you SAY will happen doesn't happen, complain because you aren't spending enough. Rinse, repeat.

I call it the "I'm Right Until I'm Not" Theory of Economics.
1 year ago
1 year ago Link To Comment
Krugman reminds me of a Terry Pratchett quote. He IS the proverbial man who, having fallen the first 95 feet off a hundred foot building uneventfully, believes the last 5 feet will be a mere formality.

Actually, there may be one difference. Even that person probably could not be persuaded to intentionally speed himself up or make the ground he's falling towards harder.
1 year ago
1 year ago Link To Comment
My other favorite Steven/Stephen wrote on this subject, only included a Jeffrey Sachs vs. Krugman lefty purse fight as the model.

Putting aside the air sickness bag having to suffer two fools hitting each other's purses for a moment, it did hit home that Krugman just may be the bigger fool.

http://www.powerlineblog.com/archives/2013/03/krugman-gets-sachd-for-a-loss.php
1 year ago
1 year ago Link To Comment
"So we do not, repeat do not, face any kind of deficit crisis either now or for years to come."

Krugman is right, there is no crisis. We will continue to have deficits as far as the eye can see.
1 year ago
1 year ago Link To Comment
In other news, Boston.com ran a story from The Onion that Paul Krugman filed for bankruptcy. Wouldn't that be a hoot.
1 year ago
1 year ago Link To Comment
Your problem, Stephen, is that you see debt as representative of the nation's character and that you should pay back what was borrowed. With folks like Krugman debt is a construct that can be wished away just by thinking about other things. There's no need to pay back debt. You see, in the long run we're all DEAD. There's no way they'll ever see things yours (or my) way.

Someone forgot to tell the Keynesians that John Maynard Keynes died 67 years ago.
1 year ago
1 year ago Link To Comment
Chris, these numbers have *nothing* to do with paying down the debt. These are the payments we face just keeping up with the interest.
1 year ago
1 year ago Link To Comment
"So we do not, repeat do not, face any kind of deficit crisis either now or for years to come."

Crikey. I thought I was reading the Onion for a minute. And then I realized that you were talking about Krugman, who has obviously suffered blunt force trauma to his skull. Repeatedly. So it all makes sense now.
1 year ago
1 year ago Link To Comment
eleven zeros, but i figure we should be at twelve by 2016 anyway so no worries.
1 year ago
1 year ago Link To Comment
You're right, of course. Got it fixed. Thanks for the heads up!
1 year ago
1 year ago Link To Comment
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