MarketWatch: The alleged recovery is just as illusory as the prosperity of the housing-bubble years

[marmar]

Double-dip looks doubly certain
Commentary: The economic recovery is just an illusion

By Robert P. Murphy


NASHVILLE, Tenn. (MarketWatch) -- Economists and financial analysts are currently arguing whether the economy will experience a "double dip," a recession followed by a short recovery, followed by another recession.

Some think the worst is behind us, and that output and employment will slowly but steadily increase during the next few years. Others believe we are headed for another crash. The lessons from the last business cycle favor the case for pessimism.

It has been said that if one laid all the world's economists end to end, they wouldn't reach a conclusion. Even so, a surprisingly large number of economists now agree that then-Federal Reserve Chairman Alan Greenspan made a tragic mistake. After the dot-com bubble burst in 2000, Greenspan opened the monetary floodgates.

Specifically, Greenspan allowed the "monetary base" to increase 22% from June 2000 through June 2003. The monetary base, also called "high-powered money," is the base upon which bank loans are pyramided, expanding the total amount of money held by the public.

During the same three-year period, Greenspan cut the federal funds rate -- the interest rate commercial banks charge each other for overnight loans -- from 6.5% down to 1%, the lowest federal funds rate in more than 40 years.

The rationale for Greenspan's easy-credit policy was to provide a "soft landing" for the economy in the wake of the dot-com crash and Sept. 11 attacks. And for a while, it seemed he had succeeded. People marveled that housing prices continued to rise, even amidst the recession of 2001. Indeed, people referred to Greenspan as "the Maestro."

In retrospect, economists across the political spectrum recognize the role Greenspan's Fed played in fueling the housing bubble. The more cynical analysts argue that Greenspan's policies weren't "easy" at all and merely postponed the inevitable day of reckoning for the economy. Rather than gritting its teeth and suffering through the necessary adjustments in the early 2000s, the nation got an injection of artificial credit that masked the underlying problems with a euphoric boom. ............(more)

The complete piece is at: http://www.marketwatch.com/story/double-dip-looks-doubly-certain-2010-07-20?dist=beforebell

[xchrom]

1. recommend

[MadHound]

2. Nice to see that the pros are finally catching up to the rest of us,

A lot of people, specifically those hurt most by this recession, have been saying all along that this "recovery" is so much BS.

[marmar]

3. Yep, and this is the Wall Street Journal-owned MarketWatch......

.....usually a source of economic Koolaid.