Thursday, June 18, 2009

Paul Krugman: "We Need a Housing Bubble"

Paul Krugman, 2008 recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (commonly referred to as the Nobel Prize in Economics), should be a public disgrace for not recognizing how wrong he has been. He claims that he foresaw the implosion of the housing bubble. Now I have learned that in fact he did. How? By advising Mr. Allen Greenspan, former Chairman of the FED, to inflate house prices.

On Friday, August 2, 2002, Mr. Krugman said the following:
"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."[my emphasis]

There you have it in black and white, directly from the horse's mouth. Mr. Krugman is a genius. I tip my hat off to him. Bravo. No one in the Nobel Prize committee noticed this monumental gaffe (or perhaps bothered to check this), and yet he was still awarded the recognition. Anyone with any sense of self-respect would acknowledge their error. Being humble is not a sign of weakness but of strength. By failing to admit his error in judgement, he demonstrates the lack of the former. In the Bible, Jesus tells us that "there is nothing hidden that will not be revealed, and there is nothing secret that will not become known and come to light." I doubt Mr. Krugman believes this truth.

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