Even as Paul Krugman questions the patriotism of Republicans who question the efficacy of the Fed's QEII, we hear other voices fretting about deficits, monetized debt, and hyper-inflation in the US:
[L]ast week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
...How will the [fiscal] train wreck play itself out? ...[M]y prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.
And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.
So even with rates low and headed lower, we were being warned to expect hyper-inflation down the road, once markets woke up to a reality discernible only by a few. Of course, that was Paul Krugman writing in 2003 during a weak recovery and just before the Iraq War; Patriot Paul was opposed to the Bush War and the Bush tax cuts, so he was also opposed to looming deficits and the monetization thereof regardless of current labor or credit market conditions.
Now we flash forward to 2010 and in KrugWorld the temptation of politicians to inflate our debt problems away has evaporated and anyone who opposes the monetization of government debt or worries about inflation that no one can yet see (unless they look at commodity prices) is a scoundrel. Good to know.
HOW WEAK A RECOVERY? Here is the NY Times describing the jobs report that came out a few days before Krugman's March 2003 column:
The nation suffered job losses in February that were the worst since the two months after the Sept. 11 terrorist attacks, the government reported yesterday. Bad weather and war fears combined to prolong the economy's malaise, and the unemployment rate nudged up to 5.8 percent from 5.7 percent in January.
The numbers from the Labor Department showed the disappearance of 308,000 jobs from the nation's payrolls. The Bush administration called the figures disappointing but said they showed the need for quick action on the president's plan to cut taxes.
Apparently Krugman believed the report showed the need for government to focus on our structural deficit and avoid an expansion in the money supply that might debase the currency.
GDP had grown by a mere 0.1% in the quarter ending December 2002; for the quarter then underway, growth was eventualy reported at 1.6%. What an odd (yet politically convenient!) time for Krugman to be preaching austerity.