Tuesday, June 16, 2009

On File for When the Show Trials Commence

Mr. McCulley best be getting his defense together now for the Congressional hearings or the local Comittees of Public Defense or whatever populist "eat the rich" structure is going to blossom in the Long Night of this bear market. If he is even going to be allowed a defense attorney...

Dubya's Double Dip?
Published: Friday, August 2, 2002

...A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

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.

Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off...

...But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense."

Note how super-big-brain Mr. Krugman refers to the housing bubble scenario as a "happy ending." Huh.

h/t Karl Denninger

1 comment:

David said...

Hi Mike, it will be interesting to see if all of the principles at PIMCO, Bill Gross first among them, will have their involvement with the Great Train Robbery of 2008 fall down the Memory Hole. Gross was a constant presence in business news media "talking his own book" in encouraging the Fed's and Treasury's managers to bail out Fannie, Freddie, and a host of other financial players in which PIMCO had interests. It was as clear an illustration of the incestuous relationship between government appointees, their cheering section in the corporate news media, and crony capitalists like Gross at PIMCO as you could ever see.

When social mood is heading upward for so long, people get used to picking others' pockets in broad daylight. Will the turn through the dark valley name the guilty, or will the guilty present scapegoats on whom the public's rage will land?