Predictably, people reconciled Krugman’s two wildly divergent opinions on the dangers of the US inflating its way out of debt by saying we weren’t in a liquidity trap in 2003. Okaaaay, but can someone ask him politely (I don’t think he will listen to suggestions from me) to devote a future blog post to the transition? I.e., explain to me how there can be a worldwide strike by investors in US Treasuries that causes the dollar to depreciate and price inflation to spike, but then after we reach full employment suddenly investors are A-OK again with lending to Uncle Sam and interest rates go back to normal? And also, that this comforting of the investors won’t require painful austerity measures (the kind that sent unemployment in France to 11% in 1927, when they had to deal with stabilizing the franc after following Krugman’s advice two years earlier)?
I’m not being sarcastic. The CBO forecast of the US debt/GDP shows it going up and up. Everybody, including Krugman, admits there is a long-term fiscal imbalance. So I’m seriously wanting Krugman to spell out his vision for how this thing plays out, such that we get a bond strike that rescues us from the liquidity trap, but then turns on a dime so that we don’t run into the monetizing-the-debt-is-bad scenarios that Krugman himself spelled out so eloquently theoretically (when criticizing the MMTers) and as a real-world alarm (when criticizing the deficits of the Bush Administration in 2003).