By now, it should be obvious that the problem is not that the Fed has injected too much money into the economy but too little. The price of gold — which jumps at the slightest whiff of inflation — has plunged from more than $1,900 an ounce last year to less than $1,630.That, stated simply, is the basis of the Krugman recommendation for ending the depression: take those cheap borrowings, use them to employ people, and make use of the accounting identity that my purchase is your income. Whether Professor Krugman has correctly analyzed the Obama administration as being too cautious in its fiscal policy, or whether subsequent research will understand the administration as attempting too many things with its stimulus (most notably, shovel-ready is a nod to environmental interest) will await the production of a few doctoral dissertations. That is, if there are any academic departments left to produce dissertations.
The commodity price index is down 7 percent from a year ago. Home sales have been tepid despite mortgage rates lower than anyone could ever have dreamed.
When lenders anticipate debasement of the currency, they demand higher interest rates to compensate for the risk. But currently, five-year Treasury bills are paying 0.71 percent, and 20-year bonds offer only 2.33 percent. In the mid-90s, a period of low inflation, those rates ranged well north of 5 percent.
(Cross-posted to 50 Book Challenge.)