Connect with us


Stagflation Keeps Making A Fool Out Of Paul Krugman

Stagflation Keeps Making A Fool Out Of Paul Krugman

How many times can an Ivy League economist be wrong before they have to turn in their…



Stagflation Keeps Making A Fool Out Of Paul Krugman

How many times can an Ivy League economist be wrong before they have to turn in their diploma and their Nobel Prize and move on to a job better suited for them, such as food service management?  Apparently in the world of establishment economics the best path to success is to fail upwards; Paul Krugman is the proof.

Outside of financial circles the majority of people don't know or care who Krugman is, but it's a mistake to dismiss his influence within the mainstream media and politics.  You will hear many of his arguments repeated by human parrots when you least expect it.  His faulty narratives and illogical conclusions tend to spread into regular dinner table conversation in the weirdest ways.

His best known terrible prediction is perhaps his internet prophecy.  In 1998 he predicted that the growth of the web would 'slow drastically' and would have little overall meaning for the global economy, comparing the internet to the fax machine in terms of relevance.  This might seem like a harmless fail today, but the problem is not the prediction, it's the fact that Krugman consistently proves that he is arrogant enough to venture wild analysis on subjects he has zero understanding of.  This is a characteristic that has followed him around for most of his career. 

Another habit of Paul Krugman is his propensity to flip-flop on every economic issue so that when the consequences of events become readily clear he then searches through his backlog of hundreds of contradictory editorials and contradictory comments to find the one prediction that fits the bill; he then proclaims himself the great prognosticator of crisis or recovery depending on whatever happens first.  

His very limited mentions of the possibility of a “housing bubble” in articles published in 2006/2007 conflicted greatly with his unicorn optimism on stocks going to the moon.  When the housing bubble imploded, he declared that he predicted the whole thing.  In truth, his analysis was a joke while others like Ron Paul and Peter Schiff had outlined in great detail exactly what would happen to the housing market years in advance.  All Krugman did was vaguely predict a “slowdown” at some point; he never predicted the epic worldwide credit disaster that actually occurred.

Krugman went on to champion an endless array of bailouts, stimulus packages, QE and near zero interest rates in response to the credit crisis.  Keynesians only have one answer to every economic problem, which is government spending and central bank fiat printing ad nauseum.  Krugman even suggested that the initial bailouts of 2008/2009 were “too small” and argued in favor of trillions more.  He was not aware at the time, but a GOA audit of the early bailouts, pursued only because of the relentless efforts of Ron Paul, would reveal that the Federal Reserve had actually created over $16 trillion from thin air.

It is actually the Keynesian arrogance (or perhaps malice?) of central bankers and economists like Krugman that led directly to the stagflationary crisis we are witnessing right now.  While supply chain issues certainly abound, the US was suffering from rising prices well before the covid pandemic or the war in Ukraine and resulting sanctions on Russia.  

In fact, these events act more like a fog or cover for the REAL cause of inflation, which is a decade of fiat printing by central banks in classic Keynesian fashion.  The $6 trillion-plus in covid stimulus in 2020 was nothing more than the straw that broke the camel's back.  

Krugman is partly culpable.  This might be the reason why he refused to acknowledge the stagflation threat for years despite mounting evidence, calling price inflation “transitory” until the end of 2021.  Then he flip-flopped as usual and noted the “possibility” that prices might stay high and that he might be wrong.  This was only after ridiculing many analysts in the alternative economic sphere for sticking by their inflation predictions.  

Inflation/stagflation often takes time to circulate through an economy and register in a way that noticeably affects the public.  In the 1970s, the process took around 10 years to culminate.  It grew exponentially until the early 1980s when Paul Volcker finally hiked interest rates to around 20%, crushing many businesses in the process.  Because America has enjoyed the rise of the dollar as the world reserve currency since that time, trillions in fiat stimulus was not an immediate threat because those dollars were sure to circulate into the coffers of numerous foreign banks and stay overseas.  Now, the dollar's reserve status is in decline, more and more greenbacks are staying within circulation in the US, there are more and more dollar's chasing less and less goods and the party is finally over.  

A week ago Krugman once again put his foot in his mouth.  After admitting that he was wrong on stagflation, he flip-flopped, stating that the 'stagflation narrative is collapsing' and dismissed concerns about higher prices.  And, as always he attacked other economists, saying they were just 'propping up' a threat that's in reversal.

Krugman's claim was that the Fed's 75 bps rate hike along with falling stocks was an indicator that inflation was over.  He refused to even entertain the idea of stagflation, which is a combination of rising prices and declines in other sectors of the economy including GDP and employment.  Krugman's flip-flop was built on a naive understanding of inflation/stagflation and what it entails.  For him, plunging stocks mean deflation, and being a Keynesian, deflation cannot be tolerated.  

Then, the CPI print came in on Wednesday and made Krugman look rather foolish, with official inflation numbers hitting 9.1% and new 40 year highs, well above market expectations (and Krugman's expectations).  Krugman refused to admit defeat, saying that 9.1% inflation was not much to be worried about.

His argument?  That the CPI print is “outdated” because of recent declines in stocks and gasoline.  This is the same idiotic narrative regurgitated by Joe Biden and the White House recently.  If CPI had come in lower than last month, would Krugman and Biden be shaking their heads and telling the public that the numbers are “outdated” and not a reflection of the real situation?  No.  They would be crowing on the mountain tops and demanding praise.  They would be ignoring the fleeting circumstances of stocks or gas prices instead of hyperfocusing on them.

But what is reality?

CPI is actually a rigged statistic designed to downplay real inflation rates.  If we were to calculate inflation according to the methods used by the government in the 1970s and 1980s the actual inflation rate would be closer to 17%.  But even if we ignore true inflation, a CPI print of 9.1% is not to be taken lightly.

Stagflation is a fact according to the spread between rising prices and falling GDP as well as frozen wages.  The only technical factor that is missing is growing unemployment, but that is a situation developing now as job growth slows and more companies announce impending layoffs.  

Stock markets have little to no bearing on stagflation status (sorry Paul).  Stocks are a TRAILING indicator of economic instabilities that have long been in play, not a leading indicator of what is about to happen in the future.  As for gasoline prices falling, they have barely dipped.  And, this minor dip was probably helped along by Biden once again dumping millions of barrels of oil onto the market from the US strategic reserves.  This is not enough to dismiss stagflation, not by any means.  

For Krugman, the bigger picture doesn't exist.  He is only interested in the data of the moment and being right no matter what.  If even one indicator supports his biased position, he will focus on it and ignore hundreds of other indicators that contradict his position.  When his position becomes obviously untenable he shifts stance and acts as if he saw the danger coming all along.  Again, how many times can an economist be wrong or flip-flop on his claims before he is no longer relevant?  It would seem that Krugman's novelty has worn off and now it's time for him to hang up his hat. 

Tyler Durden Fri, 07/15/2022 - 18:40

Read More

Continue Reading


Yom Kippur is coming soon – what does Judaism actually say about forgiveness?

Many religions value forgiveness, but the details of their teachings differ. A psychologist of religion explains how Christian and Jewish attitudes co…




Two women embrace before a Yom Kippur service held outdoors during the COVID-19 pandemic in Los Angeles. Al Seib/Los Angeles Times via Getty Images

The Jewish High Holidays are fast approaching: Rosh Hashana and Yom Kippur. While the first really commemorates the creation of the world, Jews view both holidays as a chance to reflect on our shortcomings, make amends and seek forgiveness, both from other people and from the Almighty.

Jews pray and fast on Yom Kippur to demonstrate their remorse and to focus on reconciliation. According to Jewish tradition, it is at the end of this solemn period that God seals his decision about each person’s fate for the coming year. Congregations recite a prayer called the “Unetanah Tokef,” which recalls God’s power to decide “who shall live and who shall die, who shall reach the ends of his days and who shall not” – an ancient text that Leonard Cohen popularized with his song “Who by Fire.”

Forgiveness and related concepts, such as compassion, are central virtues in many religions. What’s more, research has shown that it is psychologically beneficial.

But each religious tradition has its own particular views about forgiveness, as well, including Judaism. As a psychologist of religion, I have done research on these similarities and differences when it comes to forgiveness.

Person to person

Several specific attitudes about forgiveness are reflected in the liturgy of the Jewish High Holidays, so those who go to services are likely to be aware of them – even if they skip out for a snack.

In Jewish theology, only the victim has the right to forgive an offense against another person, and an offender should repent toward the victim before forgiveness can take place. Someone who has hurt another person must sincerely apologize three times. If the victim still withholds forgiveness, the offender is considered forgiven, and the victim now shares the blame.

The 10-day period known as the “Days of Awe” – Rosh Hashana, Yom Kippur and the days between – is a popular time for forgiveness. Observant Jews reach out to friends and family they have wronged over the past year so that they can enter Yom Kippur services with a clean conscience and hope they have done all they can to mitigate God’s judgment.

The teaching that only a victim can forgive someone implies that God cannot forgive offenses between people until the relevant people have forgiven each other. It also means that some offenses, such as the Holocaust, can never be forgiven, because those martyred are dead and unable to forgive.

Many people dressed in black and white stand in a courtyard between ancient walls.
Thousands of Jewish pilgrims attend penitential prayers at the Western Wall in Jerusalem ahead of the Jewish High Holiday of Rosh Hashana. Menahem Kahana/AFP via Getty Images

To forgive or not to forgive?

In psychological research, I have found that most Jewish and Christian participants endorse the views of forgiveness espoused by their religions.

As in Judaism, most Christian teachings encourage people to ask and give forgiveness for harms done to one another. But they tend to teach that more sins should be forgiven – and can be, by God, because Jesus’ death atoned vicariously for people’s sins.

Even in Christianity, not all offenses are forgivable. The New Testament describes blaspheming against the Holy Spirit as an unforgivable sin. And Catholicism teaches that there is a category called “mortal sins,” which cut off sinners from God’s grace unless they repent.

One of my research papers, consisting of three studies, shows that a majority of Jewish participants believe that some offenses are too severe to forgive; that it doesn’t make sense to ask someone other than the victim about forgiveness; and that forgiveness is not offered unconditionally, but after the offender has tried to make things right.

Take this specific example: In one of my research studies I asked Jewish and Christian participants if they thought a Jew should forgive a dying Nazi soldier who requested forgiveness for killing Jews. This scenario is described in “The Sunflower” by Simon Wiesenthal, a writer and Holocaust survivor famous for his efforts to prosecute German war criminals.

A color photograph of an older, balding man in a blue shirt and striped tie.
Simon Wiesenthal at the White House during the Reagan administration. Diana Walker/The Chronicle Collection via Getty Images

Jewish participants often didn’t think the question made sense: How could someone else – someone living – forgive the murder of another person? The Christian participants, on the other hand, who were all Protestants, usually said to forgive. They agreed more often with statements like “Mr. Wiesenthal should have forgiven the SS soldier” and “Mr. Wiesenthal would have done the virtuous thing if he forgave the soldier.”

It’s not just about the Holocaust. We also asked about a more everyday scenario – imagining that a student plagiarized a paper that participants’ friends had written, and then asked the participants for forgiveness – and saw similar results.

Jewish people have a wide variety of opinions on these topics, though, as they do in all things. “Two Jews, three opinions!” as the old saying goes. In other studies with my co-researchers, we showed that Holocaust survivors, as well as Jewish American college students born well after the Holocaust, vary widely in how tolerant they are of German people and products. Some are perfectly fine with traveling to Germany and having German friends, and others are unwilling to even listen to Beethoven.

In these studies, the key variable that seems to distinguish Jewish people who are OK with Germans and Germany from those who are not is to what extent they associate all Germans with Nazism. Among the Holocaust survivors, for example, survivors who had been born in Germany – and would have known German people before the war – were more tolerant than those whose first, perhaps only, exposure to Germans had been in the camps.

Forgiveness is good for you – or is it?

American society – where about 7 in 10 people identify as Christian – generally views forgiveness as a positive virtue. What’s more, research has found there are emotional and physical benefits to letting go of grudges.

But does this mean forgiveness is always the answer? To me, it’s an open question.

For example, future research could explore whether forgiveness is always psychologically beneficial, or only when it aligns with the would-be forgiver’s religious views.

If you are observing Yom Kippur, remember that – as with every topic – Judaism has a wide and, well, forgiving view of what is acceptable when it comes to forgiveness.

Adam B. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Read More

Continue Reading


EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…



The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

Read More

Continue Reading


August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…



With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

Read More

Continue Reading