Let me offer you an excerpt written by a famous economist back in 2002:
"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 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...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."
I ask, dear reader, whether you think the above excerpt implies any endorsement of a Fed policy that would encourage consumer spending, with hopes that it might generate a bubbly outcome in housing? The writer flatly denies it. But, to help you along in your own analysis, let me offer up another much more recent quote (August, 2011) from the same economist in a different context. After reading, hopefully you'll understand why I have chosen it:
"Which people am I talking about? Money managers, obviously; they may know a lot about individual markets and companies, they may have lots of experience, but now that we're talking about macro issues of a kind not seen since the 1930s, those talents are a lot less relevant than usual. Pimco used to have Paul McCulley, who was very good on the macro, but with him gone, they seem to be making up theories on the fly."
The reference point is Paul McCulley, and the continued intimation is that he knows what he's talking about. Thus, when he's mentioned in the 2002 piece, it should be rather clear that the author does not believe that McCulley is offering up a dangerous idea. If anything, he seems to be agreeing in the assessment of what needs to be done, although he's skeptical that the Fed can successfully pull it off.
Therefore, with all of the above out of the way, should it concern you that so many people still pay attention to this guy today? Even worse, he tries to credit himself for coming out in 2005 and writing "Wait a minute! There's a housing bubble! Beware!". The way I look at it, if you helped to poison the patient, you're not a hero for then diagnosing the ailment. But, in the world we live in, these are the types of folks who help to shape the narrative and the "solutions" that are tendered. And we all get to pay the price.
