The Train Has Already Left the Station: A Reply to Paul Krugman
Today, by contrast, we’re still living in the aftermath of the worst financial crisis since the Great Depression, and the Fed, in its effort to fight the slump, has already cut interest rates as far as it can — basically to zero. So the Fed can’t blunt the job-destroying effects of spending cuts, which would hit with full force.
The point, again, is that now is very much not the time to act; fiscal austerity should wait until the economy has recovered, and the Fed can once again cushion the impact.
The same story emerges if one looks at the shrinking budget deficit. Note also that short-term interest rates have been near 0% since early 2009. So somehow the Fed has been able to keep NGDP growth stable despite (1) a fiscal contraction and (2) the zero lower bound on short-term interest rates. According to Paul Krugman this is not possible.
on other riskier assets (like stocks and physical capital) as well as
goods and services in expectation of higher nominal income and temporarily higher inflation. Asset prices would increase, household balance sheets would be repaired, and real debt burdens reduced. This would reinforce the recovery in NGDP growth.
2013-02-08 10:46:58
Source: http://macromarketmusings.blogspot.com/2013/02/the-train-has-already-left-station-paul.html
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