Krugman Gets His Alien Invasion…And Gold Bugs Get Paradise

Nobel Prize winning economist and uber-liberal New York Times columnist Paul Krugman likes to illustrate his philosophy by noting that the threat of an alien invasion would help the economy by stimulating government spending.

Well, last week’s election gave Krugman and the rest of the Keynesian establishment their alien invasion (Trump and company being only partially human when viewed through Beltway-culture eyes). And sure enough, it’s resulting in massively-higher government spending. Infrastructure is phase one:

Some Thoughts

The above proposals have antecedents in Eisenhower’s construction of the interstate highway system in the 1950s and Reagan’s tax cuts and defense build-up in the 1980s, both of which were seen as successes at the time.

There’s just one problem. Those programs were enacted when debt levels as a percentage of GDP were miniscule compared to today. Since borrowing, like any other activity, tends to become less effective with overuse, ladling another few trillion on top of the hundred or so trillion already owed won’t accomplish much. In economists’ terms, the “marginal productivity of debt” has plunged as total debt has soared, which implies that we can now borrow infinite dollars and get virtually zero new wealth.

But it’s possible that massive increases in government borrowing and Fed currency creation will generate the inflation that Keynesians love and conservatives don’t seem to understand. If so, a falling dollar would – in the best-case scenario — bring back the stagflation of the 1970s.

As readers of a certain age will remember, that was a great time to own gold and silver.

Courtesy of dollarcollapse.com