Tags: Krugman | Paul | Fed | audit

Krugman: Rand Paul's Criticism of Fed 'Wrong on So Many Levels'

By    |   Tuesday, 17 February 2015 08:37 AM

As you might expect, Nobel laureate economist Paul Krugman isn't too excited about the criticism of the Federal Reserve coming from some Republicans, particularly Sen. Rand Paul, R-Ky.

"The emerging GOP consensus on money is crazy — full-on conspiracy-theory crazy," Krugman writes in The New York Times.

As for potential presidential candidate Paul, who has proposed a Fed audit, "Mr. Paul likes to warn that the Fed's efforts to bolster the economy may lead to hyperinflation," Krugman says.

"He loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he's been saying that since 2009, and it keeps not happening." So now Paul focuses on the Fed being an overleveraged bank that could collapse, Krugman says.

"This story is wrong on so many levels that reporters are having a hard time keeping up. But let's simply note that the Fed's 'liabilities' consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can't fall victim to a bank run."

The central bank's balance sheet has mushroomed to $4.5 trillion through its quantitative easing during the past seven years.

Meanwhile, former Treasury Secretary Larry Summers says the Fed should refrain from raising interest rates until it "sees the whites of inflation's eyes."

And why is that?

"There's no reason to slow down the economy except to serve a purpose. Wages haven't been rising in way that has kept up with prices for a long time," the Harvard professor tells CNBC.

Average hourly earnings advanced just 1.7 percent last year, while the personal consumption expenditures price index climbed 0.7 percent

"Middle-class families are still struggling, and the Fed is still well short of its [2 percent] inflation target," Summers said.

"Indeed, if you look at core inflation [excluding food and energy] and take out housing, there's no price increases at all. So, we've got room."

Summers doesn't rule out the possibility that the Fed may have to increase rates soon. But, "the criteria should be no hitting the brakes until we see a barrier that we're worried of crashing into, and with core non-housing inflation at zero, we're some distance from that."

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As you might expect, Nobel laureate economist Paul Krugman isn't too excited about the criticism of the Federal Reserve coming from some Republicans, particularly Sen. Rand Paul, R-Ky.
Krugman, Paul, Fed, audit
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2015-37-17
Tuesday, 17 February 2015 08:37 AM
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