{"id":159,"date":"2012-09-09T18:45:18","date_gmt":"2012-09-09T18:45:18","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=159"},"modified":"2012-10-05T13:05:04","modified_gmt":"2012-10-05T13:05:04","slug":"kru-turn","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=159","title":{"rendered":"krU-Turn: The Depression Ended in August"},"content":{"rendered":"

A Chronic Depression . . .<\/strong><\/p>\n

While you and I were on vacation, Professor Paul Krugman was making the rounds of TV studios, flogging his book End This Depression Now<\/strong>.\u00a0 He defines the current \u201cdepression\u201d as a \u201cchronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards collapse.\u201d\u00a0 This condition results in high unemployment that is blighting the lives of millions of Americans.<\/p>\n

. . . Requires Aggressive Policies . . .<\/strong><\/p>\n

But this pain is avoidable, Krugman tells us, if Washington would just pursue tried-and-true Keynesian economic policies.\u00a0 He wants Washington to help under-water homeowners refinance their mortgage.\u00a0 To avoid more layoffs of teachers and policemen he recommends new \u201cstimulus\u201d spending of $300 billion annually.\u00a0 More radically, Krugman wants the Fed to double its inflation target from 2% to 4% in order to shrink the value of outstanding debt.<\/p>\n

Without a doubt, these policies would be risky. With the U.S. already running a huge budget deficit, America’s\u00a0creditors could be spooked by\u00a0even more stimulus spending, a shift toward higher inflation, and a resulting weaker dollar. Treasury refundings could become white-knuckle affairs, like those in Spain and Italy. And higher inflation would depress real wages while shrinking the savings of Americans invested in money market funds and bank CDs.<\/p>\n

. . . Never Mind<\/strong><\/p>\n

But as summer turns to autumn, the days get shorter, football season begins, and Professor Krugman\u2019s book royalties roll in, we are relieved to learn that it was all a big misunderstanding. \u00a0America does not, after all, need to take risky new measures to end a debilitating depression.\u00a0 Far from being a \u201cchronic\u201d condition, the depression Krugman warned about in June and July is ending\u00a0in September!\u00a0 Or so we are informed in his September 7 New York Times<\/strong> column, which states \u201cthe forces that have been holding the economy back seem likely to fade away in the years ahead.\u201d Specifically:<\/p>\n