It's Official, Credit Markets Going Berserk Again

Monetizing government debt is a MAJOR policy blunder, Keynesianism gone awry.

Well if the Fed is willing to spend a few trillion dollars, it's only fair to throw a hell of a party.
Just watch the hang-over

this is how capital markets work. companies are free to raise money for whatever they want. you dont think the guys buying the bonds know whats going on??

aren't you the same guy who wonders why you can deduct property taxes from both federal and state returns?

"Monetizing government debt is a MAJOR policy blunder, Keynesianism gone awry."

OMG, you are a fricking idiot. Its Milton Friedman.

First, LICCdope, it's not "monetizing the debt" - this could be done with a surplus or a deficit. In fact, it was PRECISELY what the Weimar Republic did to CONTROL inflation (and it worked).

Second, as Jason so clearly states, THIS IS MILTON FRIEDMAN POLICY, nothing Keynes did or ever would have recommended. Keynes did not support constricting the money supply during the Depression, but he also did not support massive injections of cash without giving it a specific purpose to make sure it was used to a specific end. Bernake's policy is to subsidize the private sector by giving them free money, and not ask that anything be done in return.

Sort of like the Greenspan policy of deregulating the banks, letting them assume all the profit, and then being forced to take on all of the loss. EXACT SAME THING.

You really need to get your Econ .005 book back out from 8th Grade Social Studies.

steve, the streeteasy joker who has consistently made a fool of himself with idiotic statements regarding economics, does it again.

http://www.businessinsider.com/dalls-fed-chief-fisher-debt-monetization-2010-11

steve, who doesn't understand what an opportunity cost is, who thinks income paid to you in 2011 is reported on your 2010 tax return, who doesn't know the difference between marginal tax rates and effective tax rates, and who can't understand rent ratios, tries to obnoxiously lecture about economics. Priceless!

Massive government deficit spending (Keynesian), leading to massive debt, leading to printing money- this is not Friedman's philosophy at all. Friedman favored monetarism to control inflation and address downturns in the business cycle (among other things), not to correct bad government fiscal policy. Go take a basic economics course steve and try not to continue embarrassing yourself.

I would like to understand this thread and it's significance. Please, someone talk s-l-o-w-l-y to me and explain it. I think I understood about every third word.

LICC -- By saying that Keynesian economics equals "massive government deficit spending," you have shown that you only understand labels and catchphrases and not what the underlying theories actually are. Here's a good primer from Alan Blinder:

http://www.econlib.org/library/Enc/KeynesianEconomics.html

Why shouldn’t government, thought Keynes, fill the shoes of business by investing in public works and hiring the unemployed? The General Theory advocated deficit spending during economic downturns to maintain full employment.

http://www.econlib.org/library/Enc/bios/Keynes.html

You are correct in that while Keynes did call for government deficit spending, he didn't necessarily promote massive deficits. But Keynesians since have embraced massive deficit spending as part of their economic arguments.

"Despite the good sense of the Europeans, one of the most famous living economists — Nobel laureate Paul Krugman — has been heaping scorn on their push for austerity.

Krugman doesn’t deny that several countries have experienced economic turnarounds after their governments sharply cut spending. But Krugman’s arguments underscore the vacuity of the Keynesian position. He says that the previous examples aren’t relevant today because those success stories involved a country either slashing interest rates or expanding its exports. He says that short-term interest rates are already at rock-bottom levels and the world can’t increase its (net) exports, so he argues that the ECB’s case studies offer no guidance to today’s policymakers.

But what evidence do Krugman and the Keynesians have for their own policy recommendations? The two classic examples of massive deficit spending occurred during the 1930s and in our recent crisis — and these just so happen to be the two worst periods in modern economic history. In other words, the Keynesians’ “solutions” of bigger deficits went hand-in-hand with awful economic results.

Of course, Krugman and other Keynesians have a ready answer: things would have been even worse had FDR not run up the debt as high as he did, or had Obama not signed his “stimulus” into law. Yet, note the pattern: free-market economists can point to actual success stories, which the Keynesians must argue away. And then they have to explain years of stagnation after their policies are implemented.

Keynesian economics is based on the absurd premise that the way to fix a depressed economy is to let politicians borrow and spend unprecedented amounts of money. Not surprisingly, there are no clear-cut examples of this theory working in practice. Meanwhile, as the European Central Bank acknowledges, there are many examples of economic boosts coming from cuts in government spending.

President Obama and other policymakers should take the ECB’s analysis to heart. Economists from across the political spectrum acknowledge that the U.S. government needs to address its long-term debt problem. Yet both theory and history show that a well-designed austerity program can deliver immediate economic benefits as well."

Robert Murphy is a senior fellow in Business and Economic Studies at the Pacific Research Institute.

"Pacific Research Institute"?

Here's what the website says: "The Pacific Research Institute for Public Policy promotes the principles of individual freedom and personal responsibility. The Institute believes these principles are best encouraged through policies that emphasize a free economy, private initiative, and limited government."

Tendentious much? I'll take Princeton over the PRI and so would just about any sane person.

Great argument- Princeton is correct because it is Princeton. This is what liberal argument has devolved into.

No, actually, the argument is that Blinder is correct because he is a leading economist from an extremely well-respected academic institution and has been published in the NYT, Washington Post and WSJ while Murphy is a wack job from a right-wing place no one has ever heard of who has the following resume: "After earning his doctoral degree, Murphy served as Visiting Assistant Professor of Economics at Hillsdale College in Michigan, U.S., a role he relinquished in the summer of 2006 when he moved back to New York City. From 2006 until early 2007, Murphy was employed as a research and portfolio analyst with Laffer Associates, an economic and investment consultancy firm." Take your pick.

Isn't PRI the socialist dictatorship that ruled Mexico for 70 years or so?

You just repeated yourself- don't look at the substance of the argument, just look at who is saying it.

Hundreds of economists and three Nobel laureates signed the below, as well as economists from Harvard, U. of Chicago, NYU, Duke, Columbia, Vanderbilt, Michigan, Cornell, U. of Penn., Northwestern, UVA, and others.

"Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."

People like to attack Franklin Roosevelt. They'e so jealous of his legacy. Not only did Roosevelt pull us out of the depression, but he saved this country from going communist.

As far as lower tax rates, the rich are getting a free ride, milking the poor and middle class. Never has there been such a gap between the rich and the rest of the country.

The problem with Obama is that the stimulus did not provide for what was needed to jump start the economy. It turned out he had no shovel ready projects. Don't use Obama as an example of government spending that did not work. If the stimulus package was done right, it would have done a lot of good for the jobs picture and the economy.

this will end bad for us all.

let's not dick over past presidents and 1930's policy.
it's a new day and a new pickle which requires a new solution.
cheap money in the hands of those whose destiny is to self serve with the hope that it results in a greater good is a fools plan.

note to self: Buy Rosetta Stone Mandarin ASAP.

why is everyone getting so bent out of shap over a high yield deal..this is par for the course. Its a good sign that credit markets are working

did you read the article? do you understand how stupid a deal this is for the bondholders? do you understand what that means? you sound like the idiots who were applauding the ninja loans.