Paul Krugman is really getting desperate. It’s amazing to see him waving his arms and pointing the finger of blame for a crisis that he didn’t foresee and doesn’t understand just about anywhere but where it rightfully belongs:
How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago. At the time, Mr. Bernanke was trying to be reassuring. But what he said then nonetheless foreshadowed the bust to come. The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia.
Asia? Why Asia? Well, Ben Shalom is happy to invent plenty of reasons that sound plausible to the economically ignorant, but he didn’t mention the most important one: the Federal Reserve can’t reasonably be held responsible for anything that happened in Asia. So, it’s not the fault of the monetary authorities that we were told by Milton Friedman and the Chicago Boyz are all-powerful, nor the politicians of both parties who have been spending money like a call girl who finds herself in possession of a CEO’s corporate card. It’s all because of those damned enigmatic yellow people!
In the mid-1990s, he pointed out, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 (which seemed like a big deal at the time but looks trivial compared with what’s happening now), these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world…. The result was a world awash in cheap money, looking for somewhere to go.
If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut. And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust. One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.
I’m going to have to look into the details in order to decisively explode what Krugman is saying here, but I’m extremely confident that the amount of SAVINGS in the emerging economies of Asia since 1998 don’t come anywhere close to the amount of DEBT created by the Federal and multiplied 40x to 60x by its member banks over that same period. How can “foreign assets held by foreign governments” be so blithely equated with private savings? Krugman appears to be a man with a Keynesian hammer, wildly flailing about at a flock of dive-bombing crows that his fevered imagination tells him are flying nails.
It’s madness. Total unadulterated madness. Do you really wonder, with desperate lunatics like these at the forefront of the effort to defy economic gravity, I am so supremely confident that they will not succeed where their predecessors failed?