Krugman on European Financial Suicide

[alice wellintown]

It's a quote, Richard; Krug wrote it and published it in the NYT. And,
again, while I think his motives good, I mean, who doesn't want people
to find jobs and live better lives, his suggestion, if implemented,
would fail to accomplish what he hopes for because citizens will
simply resort to their old spending habits and, and this is important,
continue to bet on real estate. As Shiller sez, real esate is not an
investment. But, and this is the cause of most of the usffering in
Spain and in the US and in many other places around the globe, people
treat real estate like a specualtive investment. That lenders treated
home owners like specualtive investments is also a very big part of
the problem, so I agree with your, fairly obvious point, that the
lending institutions need to be regulated and punished for their
crimes. But I don't engage in or believe in class or war, so...


>> 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.