The obtuseness of Krugman and Bernanke

Via:  www.nytimes.com

Here’s Paul Krugman on the Spanish bailout:

Oh, wow — another bank bailout, this time in Spain. Who could have predicted that?

The answer, of course, is everybody. In fact, the whole story is starting to feel like a comedy routine: yet again the economy slides, unemployment soars, banks get into trouble, governments rush to the rescue — but somehow it’s only the banks that get rescued, not the unemployed.

Just to be clear, Spanish banks did indeed need a bailout. Spain was clearly on the edge of a “doom loop” — a well-understood process in which concern about banks’ solvency forces the banks to sell assets, which drives down the prices of those assets, which makes people even more worried about solvency. Governments can stop such doom loops with an infusion of cash; in this case, however, the Spanish government’s own solvency is in question, so the cash had to come from a broader European fund.

Bernanke, who studied the Great Depression, and Krugman, are both “mainstream economists,” meaning that they don’t acknowledge that the distribution in America is broken, making AgD-based macro policy a joke; and they both also seem not to realize that debts that will not be repaid do not belong on banks’ balance sheets, nor do they deserve taxpayer-funded bailouts.  Bernanke seems to have missed the fact that we have something called “deposit insurance” now, so that when banks fail depositors are not wiped out and AgD does not have to collapse (for that reason).

I’ve written before that Paul Krugman is too close to New York to think independently, and the column referenced above confirms that belief.

The sooner the bad debt is written off the sooner aggregate demand can recover.  Nationalize the banks, put them into receivership, do what it takes, protect the people’s deposits, but don’t bail them out.  Putting any more bad debt on taxpayers is criminal. 

The mainstream economists do not know the meaning of “bad debt,” and like the accounting profession, have deluded themselves into believing current balance sheets.  The time-honored traditions of honest banking require debts that have no realistic chance of being repaid to be written off the books.  None of these economists seem to know anything about honest banking.

From all reports the [largely unregulated] Spanish banking system is a house of cards.  The Spanish real estate bubble was worse than anybody’s.  And Krugman says we should bail them out?

The banks have cried wolf too much already.  Shut them up. 

And the same goes for Krugman, Bernanke, and the would-be rock star econo-whore from Columbia who shills for the Republicans. 

The propaganda of the kleptocracy has sunk in so deep it has become very, very difficult to avoid infection of one’s own thinking.  Beware.

Late add:  see John Hussman’s recent comment “The Heart of the Matter” for evidence that the authorities haven’t learned anything