Wednesday, June 17, 2009

If Only Someone Had Listened To Paul Krugman Back in 2002....

Back in August of 2002, Paul Krugman wrote this.

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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.
This would have saved us all, if only someone had the wit to lower interest rates and create a credit-fueled housing bubble!


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