Krugman on European Financial Suicide

[Richard Fiero]

If Alice wants to engage in class warfare that's 
fine but the class that Alice defends here has 
brought the entire world to a financial near 
death experience through its greed.

alice wellintown wrote:
>Krug has been advocating inflation because he thinks the recovery can
>be improved and  sustained by eroding the real value of debt and by
>attracting cash to investment. This is textbook economics and it would
>do exactly what Krug wants.
>
>Here is what he wrote in the NYT recently:
>
>large parts of the private sector continue to be crippled by the
>overhang of debt accumulated during the bubble years; this debt burden
>is arguably the main thing holding private spending back and
>perpetuating the slump. Modest inflation would, however, reduce that
>overhang — by eroding the real value of that debt — and help promote
>the private-sector recovery we need. Meanwhile, other parts of the
>private sector (like much of corporate America) are sitting on large
>hoards of cash; the prospect of moderate inflation would make letting
>the cash just sit there less attractive, acting as a spur to
>investment — again, helping to promote overall recovery.

That's not what he said. He said that moderate 
inflation prevents stashing cash under the 
mattress and spurs spending. With respect to 
debt, the ruling elites gave us credit against 
future earnings rather than paying us the wages 
that should have grown over time.

>So, it's not merely a matter of Krug feareing deflation; he wants to
>bail out the bubble debtors and move cahs to capital investment.
>
>Like a hair of the dog, Miss, that's all. Yeah, but who is going to
>pay for it? That cash on the sidelines might be paid to current
>investors, those who have their money at risk and should be
>compensated. Buy back some stock, retire some debt early, pay
>dividends to stock holders, this includes all of us tax payers who
>invested in the bailouts. Make us whole, first, and then send us a
>check. And why inflate the houses under water and let home owners pay
>off the bloated mortgages with chaep money? This won't do anything but
>mainline the junkies. Of course it will work for a time, but the sold
>rock, the prudant and frugal and the monies lent from those who save
>and invest will take it on the chin.  No thanks.

The banks do not want to mark their holdings to 
market and wipe off their fictitious assets. 
Shouldn't they suffer the consequences of their 
own greed, poor judgment and flawed risk 
assessment. No need to worry, they are alive and quite well.