Tags: Paul | Krugman | Inflation | Unemployment

Krugman: Inflation Hawks Will Cause Massive Unemployment

Friday, 09 Apr 2010 03:30 PM

Nobel laureate economist Paul Krugman says that inflation hawks will make our economy much worse.

"What worries me most about the U.S. situation right now is the rising clamor from inflation hawks, who want the Fed to raise rates (and the federal government to pull back from stimulus) even though employment has barely started to recover," Krugman says.

"If they get their way, they'll perpetuate mass unemployment," he says.

"But that's not all," he recently wrote in the New York Times. "America's public debt will be manageable if we eventually return to vigorous growth and moderate inflation. But if the tight-money people prevail, that won't happen — and all bets will be off.”

The United States, Krugman says, needs to remember the decade following World War II, when a burgeoning gross domestic product growth allowed the nation to cut its debt in half.

It also needs to learn from Greece’s disastrous economic problems, which clearly illustrate the extreme danger posed by a deflationary monetary policy.

“That’s a lesson one hopes American policymakers will take to heart,” he says.

Analysts believe that the shape of Greece's fiscal future, whether default or bailout, could be decided quite soon.

If Greece doesn't get outside support in the next few days, it could have a hard time issuing more bonds next week in the face of "investor fatigue," Nick Stamenkovic, a fixed income strategist at RIA Capital Markets, told CNN Money.

"Basically the market is betting that Greece is going to default," Stamenkovic said. "[Investors] are pushing Greece to the brink."

Meanwhile, Federal Reserve Chairman Ben Bernanke said Wednesday that housing-market problems and high unemployment are the biggest economic challenges facing the nation.

After suffering through the worst recession since the 1930s, the economy seems to have stabilized and is growing again, Bernanke said. But the Associated Press reported that he also warned: "We are far from being out of the woods. Many Americans are still grappling with unemployment or foreclosure, or both."

The toughest problems are in the job market. Even though layoffs have slowed, hiring is "very weak," Bernanke said. He noted that unemployment, now at 9.7 percent, is still close to its highest levels since the early 1980s.

Record-low interest rates should help foster the recovery, the Fed chief said. But economic growth won't be robust enough to quickly drive down the jobless rate, he indicated.

The Fed is widely expected to keep its key interest rate near zero at its next meeting on April 27-28 and for most of this year. The Fed has held rates at such rock-bottom levels since December 2008.

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Nobel laureate economist Paul Krugman says that inflation hawks will make our economy much worse. What worries me most about the U.S. situation right now is the rising clamor from inflation hawks, who want the Fed to raise rates (and the federal government to pull back...
Paul,Krugman,Inflation,Unemployment
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2010-30-09
Friday, 09 Apr 2010 03:30 PM
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