₪RapSody₪

For those of you not familiar with Paul Krugman, he is the current darling of liberal economics due to his recent Nobel Prize (which isn't actually sanctioned by the Nobel committee, it is owned by the Swedish Central Bank.. but this gives him the fake credibility he needs to spout his nonsense) and writes op-ed's in the New York Times that have gained him a huge following by liberals and Keynesians. His more cult-like followers like to claim that he was one of the few economists who "foresaw" the housing bubble and the damage it would do to the economy.

I will now attempt to demonstrate that he actually called for the very policies that caused the housing bubble and it was only after the crisis was imminent that he changed his tune.


Some Quotes [referenced] (In these quotes, Krugman continually calls to 'stimulate' housing with low interest rates.. he has now come out and said that stimulating housing is not what he really meant.. but it's pretty clear that he did):

"During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?"
- exact date unknown, sometime in 2001



"KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).

DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy?

KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know"
- July 18, 2001


"KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It's not a happy picture."
- August 8, 2001


"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place."
- August 14, 2001


"Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package"
- October 7, 2001



"The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged."
- December 28, 2001



"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
- NYT Editorial, August 2nd, 2002


"The important point to remember is that the bursting of the stock market bubble hurt lots of people - not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn't been quickly replaced with a housing bubble.

So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it's hard to imagine what that might be. After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what's left?"
- May 27, 2005







The stupidity of these quotes to anyone who understands Austrian economics is astounding. He is basically calling for continual creation of bubbles to help the economy out of the busts created by bubbles. I guess it never crossed his mind that we'd be better off without the booms and busts at all... but he thinks these busts are apparently a force of nature, rather than a consequence of irresponsible economic policies by the Fed (continually lowering interest rates).

Here is what some Austrian economists said about the bubble while Krugman was advocating it:

"Observe that the likely burst of the housing market bubble is on account of the decline in the pool of real funding and not a tighter stance on the part of the Fed. This contradicts the popular view, which holds that as long as the Fed keeps interest rates at low levels the housing market will remain strong."
- Frank Shostak (March 4, 2003)


"There is always a bubble someplace. In a world of fiat currency and fractional-reserve banking, where money is effortlessly multiplied and pyramided, the sequence of boom and bust become inevitable, like the sequence of the seasons. In this system, the government cannot prevent the expected corrections anymore than it can prevent the onset of winter. The strong housing market has all the makings of being the next bubble—in particular high leverage and unsustainable price increases."
- Christopher Mayer (August 2003)


"...the larger problem could hit the American taxpayer, who could be forced to bailout the banks and government-sponsored mortgage guarantors who have encouraged irresponsible lending practices."

"As the chart below indicates, real residential investment has jumped far above both its historical trend and even above its cyclical channel. This indicates to me that there is a bubble in residential real estate.

Mainstream economists who discount the possibility of a housing bubble would dismiss such evidence. But they also ignore all the macro evidence of the current housing boom and see it as a positive development."
- Mark Thornton (June 4, 2004)


"The housing bubble (that Alan Greenspan says we don't have) may be starting to unravel."
- Robert Blumen (October 11, 2004)



Now, who do you trust.. someone with a PhD and a show prize, or the people who were correct?

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THREATS

Hate to go a little offtopic but things arent lookin good for the american dollar. I think the way its going, if the dollar keeps doing worse, they are going to try to come up with a new system. I dont trust geithner.

₪RapSody₪

they are already trying to come up with a new system, worldwide confidence in the dollar as the world's reserve currency is weakening every day. the treasury is doing everything it can to prop up the dollar for the short-term but even they know in the long-term it is doomed. especially if we get another stimulus package.

__________________
we're prepared to shed blood and die as martyrs for the roundtable