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Stockman, of course, is the former wunderkind congressman and budget director under Ronald Reagan, whose mammoth new book, “The Great Deformation: The Corruption of Capitalism in America,” is highly critical of the Fed’s role in managing our economy and has set Krugman off on a tear (and the book up the best-sellers’ list).
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It’s hard to know for sure why Krugman has it out for Stockman, but he took out his dagger after Stockman’s dystopic essay, “Sundown in America,” appeared in the Times on March 31, warning against the Fed’s dangerous policies.
“I was disappointed in Stockman’s piece,” Krugman wrote later that day on his Times blog. ...
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The two men faced off live April 7 on ABC’s “This Week.” “Zero interest rates are basically crucifying the savers of America on a cross of ZIRP as I call it,” Stockman said, referring to zero-interest-rate policy. “All this money is not getting out of the canyons of Wall Street. It’s going into Wall Street [and then] right back to the, as excess reserves on the balance sheet of the Fed. It allows speculators to borrow money for nothing overnight. And we get bubble, after bubble, after bubble.”
Krugman’s weak-kneed response was to ask Stockman, rhetorically, “You really think we should be raising interest rates with high unemployment?” He then went on to lecture: “We have this overly complex financial system which is why we need financial regulation to bring it back to simplicity. But it has nothing to do with excess. It has nothing to do with zero interest rates.”
I don’t know which is sadder: That the Fed’s low interest- rate, easy-money policies are literally creating the next financial bubble right in front of our eyes, or that Krugman, supposedly one of our greatest economic minds, can’t see it, even though the very same thing happened just eight years ago and led to the Great Recession of 2008. Either way, I agree with Stockman. We’re in for trouble, and sooner than we care to admit.