Krugman: The White House Believes in the Confidence Fairy

[markpkessinger]

June 9, 2011, 5:09 pm

Paul Krugman

The White House Believes in the Confidence Fairy

Ryan Avent brings grim news from a White House forum on the economy:

The comments from Gene Sperling, Director of the National Economic Council and a key member of the team negotiating an agreement on an increase in the debt ceiling, were clearer still. The White House believes, he said, that deficit-cutting is an important component (the emphasis was his) of a growth strategy. And he repeatedly said that deficit-reduction was crucial in generating economic confidence. Confidence—he repeated this word many times.

Obama has operated under severe political constraints, and those of us who criticize the inadequacy of the stimulus and other policies have to be mindful of that. But the White House did not have to concede the economic argument the way it has — especially when the confidence-fairy, invisible-bond-vigilante believers have been proved utterly wrong. I mean, how could you have a clearer test of liquidity preference versus loanable funds than having the US government borrow almost $3 trillion with zero, absolutely no, effect on interest rates?

And yet the WH buys into the doctrine that failed.

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[msongs]

1. waiting for permission from republicans is bad strategy and bad politics IMO nt

[inna]

2. bad for whom? certainy bad for us; but...

good for their real "constituency". :shrug:

[CrossChris]

8. Yep. Once you stop believing in the Populist Democrat Fairy, it all makes sense

Obama and his cabinet aren't stupid. They just aren't populists. On many issues, they simply aren't on our side.

[RandomThoughts]

3. There is a doctrine about that.

A variation was written about as 'the secret' it is that what you think, you make happen.

Not sure if that is what he means by Confidence Fairy but there are some that really think that.


That doctrine is an early delusion, basically it is to stop you from thinking, it works like this.

A thought is dropped in your head, then you see it happen. Or you think something and something close to that happens and the correlation is assembled to make it seem like what you thought happened.

So then you begin to think what you think actually occurs.

Then comes the trap.

With the same pattern, something bad happens and they try to say you made it happen by your thoughts, and from there you begin to worry about what you think. It also is why some lie about things to try to keep people thinking happy thoughts.

It is also part of a subset of the 'face' eastern lore, where what people think of someone, is what someone becomes, why gossip is used, since if you get someone to be thought bad, then that is like putting a curse on them from many people. However those curses are easy to break, it is more like a 'zerg' then anything difficult.

That doctrine was in SG1 Ori lore, it also was in the Doctor who show last of the masters, but note in the Dr. Who show it required the ArchAngel network also.

And that is where that secret doctrine misses, what you think does not happen, but sometimes if things are important, when you think something you can get some help by a free will choice of some spiritual things. Also there are some that command oppressed things to attack people, and that happens sometimes by many bad thoughts if someone is in a hierarchy.

But anyways, thats what I think on that, there is a good outer limits episode on that exact trap. About a guy that thinks he has to do 2nd level gestures all the time or bad things will happen. So he goes around afraid not doing the stuff is the cause of bad stuff happening, until that is all he does. Terrible delusion.


I would guess there are a few with that delusion, it is a sub set of 'Face' Eastern doctrine, so could be some ideas from there on it, and also I am pretty sure Bush always talking up the economy was that idea also.



There is another trap in that also, if that was true, you would steal free will, and then people would seem to be an extension of you, and you would be alone, so even if it was what happened, you would not want it to. And if what you thought controlled existence, then not wanting that to occur would be enough to stop it, and if it did not stop, it proves it is an attempt to create a delusion.



Side note, I don't think President Obama believes that, and don't think Cheney did either.

I think Cheney was in the 'brain waves' delusion, and I think President Obama is pretty grounded. But there are some in that delusion. Bush may have been in that delusion though, by how he really talked up what happens, another side effect of that delusion is much deception occurs, and very little transparency.

[Safetykitten]

4. Oh that scamp Paul! Always with the facts.

[taught_me_patience]

5. Krugman seems to forget QE2

when he says "I mean, how could you have a clearer test of liquidity preference versus loanable funds than having the US government borrow almost $3 trillion with zero, absolutely no, effect on interest rates?" It's easy to borrow money at low interest rates when you have the fed purchasing billions of treasuries to drive the price down. Let's see what happens to interest rates when the FED no longer supports the high prices (they will never let that happen though. QE3 is almost 100% guaranteed).

[notesdev]

6. seriously... he's being disingenuous again

The bond vigilantes showed up and said they ain't buying any more net Treasuries, so the Fed is monetizing it... and that's why gas is over $4/gal and food prices go up every week... and as long as we continue down this path of unaccountable massive spending, the squeeze on the middle class will continue until there is no middle class left.

[taught_me_patience]

7. Very disengenuous. Here's a chart of the gross distortions in the market

due to QE2




Here is an article discussing it:

We’ve updated our Treasury flow charts with new data from today’s release of the Federal Reserve’s Flow of Funds Accounts. The quarterly data are seasonally adjusted and annualized. They reveal quite an interesting picture.

In Q1 2011, the Fed’s QE2 purchases of Treasuries totaled $1.3 TN on a seasonally adjusted annual basis. This number far exceeds the QE2 total program and is one of the reasons why we tend to discount government statistics which have been seasonally adjusted, annualized, and sliced and diced eight ways to Sunday. It’s all we have to work with, however.

Rather than obsessing over absolute numbers, we focus on the relative movements and flows which are quite revealing. The Fed’s QE2 program has been quite successful in flushing households and nonprofits out of their Treasury holdings into asset classes such as mutual funds (see table F.100).

It’s also interesting that foreign flows into Treasuries has declined significantly since the start of QE2 and as a proportional source of financing for the U.S. budget deficit is at one of the lowest levels in years. Though the Fed will continue buying Treasuries with the proceeds from maturing securities — which we estimate to be around $230.4 BN from July1, 2011 to December 2012 — the end of QE2 will be a big test for the markets.



http://www.ritholtz.com/blog/2011/06/the-great-qe2-flush-out/

[On the Road]

9. That is a Nice Chart

I hadn't followed this in the last year or so. You can see why the Fed initiated the QEs.