[lbo-talk] Krugman on interest rate weirdness

[Michael Pollak]

On Mon, 24 Mar 2008, Doug Henwood wrote:

>> But I have a possibly naive question: can the Fed really cut the Fed 
>> funds rate that far?
>
> Yeah, sure. They can flood the system with reserves and take it down
> to 0 if they want.

Well his argument is that the Fed rate is now 2.25%, but the treasury rate 
on both 1 and 3 month notes is a little above 0.5%:

http://krugman.blogs.nytimes.com/2008/03/21/weird-interest-rates

So, he asks: doesn't that mean the Fed can only bring the interest rate 
down another half percent?  Which would leave the Fed Funds rate 
substantially above zero.

> What's up with Krugman lately? His NYT col today takes Obama to task for 
> claiming that the Iraq war has hurt the U.S. economy, pointing to the 
> stimulative effect of wars in the past. But earlier wars involved huge 
> procurements of tanks and boots; this one doesn't. Much of the rise in 
> military spending in the Bush years has gone to low- multiplier R&D and 
> contractors, not high-multiplier durable goods. And they didn't help 
> drive the oil price up over $100.

That's a very good point vis a vis the war.

As to what's up with Krugman, that's a very good question.  At some point 
he became kind of cranky and knee jerk anti-Obama.  His criticisms of O 
have been generally weaker and more superficial than his criticisms of any 
of the other Dem candidates, but he's consistently criticized him more.

My conclusion from one column in particular was that he's just one of 
those people who emotional crowds really give the creeps to.

But it might just be that his initial criticisms were met with such 
Obamanical outrage that it's made him chronically petulant, on the lookout 
for new flaws that would justify him against his slanderers, and less 
careful to double check those flaws when he thinks he finds them.

Michael