KRUGMAN: The Market Speaks

[kpete]

OP-ED COLUMNIST
The Market Speaks
By PAUL KRUGMAN
Published: March 7, 2013


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What, then, are the markets actually telling us?

I wish I could say that it’s all good news, but it isn’t. Those low interest rates are the sign of an economy that is nowhere near to a full recovery from the financial crisis of 2008, while the high level of stock prices shouldn’t be cause for celebration; it is, in large part, a reflection of the growing disconnect between productivity and wages.

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Under these conditions, of course, the government should ignore its short-run deficit and ramp up spending to support the economy. Unfortunately, policy makers have been intimidated by those false priests, who have convinced them that they must pursue austerity or face the wrath of the invisible market gods.

Meanwhile, about the stock market: Stocks are high, in part, because bond yields are so low, and investors have to put their money somewhere. It’s also true, however, that while the economy remains deeply depressed, corporate profits have staged a strong recovery. And that’s a bad thing! Not only are workers failing to share in the fruits of their own rising productivity, hundreds of billions of dollars are piling up in the treasuries of corporations that, facing weak consumer demand, see no reason to put those dollars to work.

So the message from the markets is by no means a happy one. What the markets are clearly saying, however, is that the fears and prejudices that have dominated Washington discussion for years are entirely misguided. And they’re also telling us that the people who have been feeding those fears and peddling those prejudices don’t have a clue about how the economy actually works.

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MORE:
http://www.nytimes.com/2013/03/08/opinion/krugman-the-market-speaks.html?_r=1&

[dkf]

1. Or maybe it's the Fed?

In A Speech That Almost Everyone Missed, Bernanke Explained The Real Reason US Interest Rates Are So Incredibly Low

Read more: http://www.businessinsider.com/ben-bernanke-on-low-interest-rates-2013-3#ixzz2Mxah5Pre

Let's recap. Long-term interest rates are the sum of expected inflation, expected real short-term interest rates, and a term premium. Expected inflation has been low and stable, reflecting central bank mandates and credibility as well as considerable resource slack in the major industrial economies. Real interest rates are expected to remain low, reflecting the weakness of the recovery in advanced economies (and possibly some downgrading of longer-term growth prospects as well). This weakness, all else being equal, dictates that monetary policy must remain accommodative if it is to support the recovery and reduce disinflationary risks. Put another way, at the present time the major industrial economies apparently cannot sustain significantly higher real rates of return; in that respect, central banks--so long as they are meeting their price stability mandates--have little choice but to take actions that keep nominal long-term rates relatively low, as suggested by the similarity in the levels of the rates shown in chart 1. Finally, term premiums are low or negative, reflecting a host of factors, including central bank actions in support of economic recovery. Thus, while the current constellation of long-term rates across many advanced countries has few precedents, it is not puzzling: It follows naturally from the economic circumstances of these countries and the implications of these circumstances for the policies of their central banks.


Read more: http://www.businessinsider.com/ben-bernanke-on-low-interest-rates-2013-3#ixzz2MxaOFCAO

[sendero]

2. No matter how you slice it..

... ZIRP (Zero Interest Rate Policy) is not good news and you'll know that we are starting to really recover when it is ended.

[Bandit]

3. Obama has failed again... Failed Socialist

How could a Proud Kenyan Socialist Muslim be able to sleep at night? Corporate Profits at all time record highs and the Dow hitting an all time high.. shame...shame ...shame...

[bhikkhu]

4. Exactly - all those RW talking points, disproven again

Obama re-elected, markets rally to new high; taxes go up on the rich - job growth accelerates - and so forth.

[L0oniX]

5. The Market is now given personhood with all the rights normally implied with that.

It "says", it "fears", it has "prejudices", they "tell" us. WTF is it? FrankenMarket at large. Get out the torches and pitch forks.

[RedSpartan]

6. In other words, trickle down does not work.