Paul Krugman (NYT): Dropping the Bonds

[Dudley_DUright]

In his July testimony to Congress on monetary policy, Alan Greenspan was cautious but _ adjusting for his usual funereal demeanor _ quite upbeat. ``Although the uncertainties of earlier this year are as yet not fully resolved,'' he declared, ``the U.S. economy appears to have withstood a set of blows. Not surprisingly the depressing effects of recent events linger. Nevertheless, the fundamentals are in place for a return to sustained healthy growth.''

O.K., I cheated: those quotations come from his testimony in July 2002, not July 2003. Needless to say, ``healthy growth'' failed to materialize. Undaunted, he said pretty much the same thing last week _ and the result was to reinforce a huge sell-off in the bond market, which may undermine the very recovery he predicted.

I used to be a great admirer of Mr. Greenspan. But something has gone very wrong with the maestro.

His testimony last week was surprising on several counts. There is very little evidence in the data for a strong recovery ready to break out. As far as I can make out, Mr. Greenspan's optimism is entirely based on models predicting that tax cuts and low interest rates will get the economy moving. But that's what the models said last year, too: the report that accompanied his July 2002 testimony predicted an unemployment rate of 5.25 to 5.5 percent by late 2003 (the rate is now 6.4 percent). Maybe tax cuts mainly for the affluent aren't as effective as the models say.

more...

http://www.nytimes.com/2003/07/25/opinion/25KRUG.html

[T Roosevelt]

1. Love this one

He could have redeemed himself by changing his mind once record surpluses turned into record deficits, but he didn't. Mr. Greenspan still talks about the evils of deficits, but refuses to say the obvious: that if we are ever to balance the budget again, many of the Bush tax cuts will have to be reversed once the economy recovers. Instead, Mr. Greenspan offers platitudes about spending restraint: ``I would prefer to find the situation in which spending was constrained, the economy was growing and that tax cuts were capable of being initiated without creating fiscal problems.'' (``I would prefer a world in which Julia Roberts was calling me,'' Representative Brad Sherman replied, ``but that is unlikely to occur.'') In short, the budget is in a mess, and Mr. Greenspan is one of the main culprits. And that, suggest some people I've talked to, may explain how he misjudged his recent testimony so badly.

[punpirate]

5. I only have one disagreement with this...

... in regard to raising taxes on the wealthy. Rather than doing it _after_ the economy recovers (if it recovers), it should be done soon, to a higher rate than was previously in effect. A portion of the proceeds should go to immediately pay down debt to bring interest payments on the debt down to pre-2001 levels (which will free up more money for social programs) and the remainder as revenue sharing to the states for the next two or three years, which will minimize the damage of the Jerk-off-in-Chief's ill-thought-out program to bust the federal budget and that of a few big states, as well.

Will it happen? Of course not. But, it's worth mentioning. *smile* It took some fairly calculated moves to bring us to this depth of shit in just a little more than a couple of years. It will take some opposite and equally calculated moves to undo the damage.

Cheers.

[The Backlash Cometh]

2. Krugman always seems to know what's on my mind.

His articles are so in tune with what is going on in everyday people's lives.

On edit: If we had succeeded in refinancing this last go around, we would have been prepared to buy some badly needed high-ticket items, but because there wasn't sufficient time to offset some questionable financial triage that was going on in the mortgage market between brokers & banks, we were left to die on the vine. So, we don't lower our house payments, and we'll just have to continue driving cars that are in bad need of replacement.

[displacedtexan]

3. i worry about

people who got sucked into variable rate (balloon) mortgages. as night follows day, what goes down must surely go up again.

[The Backlash Cometh]

4. No one who has been following Krugman would have fallen for that.

*

[chiburb]

6. Several weeks ago Krugman warned that...

The stock market uprise was just another bubble, that there was NO reason for it to go up other than wishful thinking. His thinking/writing/opinion is good enough for me to stay out of it! (Or buy puts.)