21 Jul 2010

“Double Dip Looks Doubly Certain”

Shameless Self-Promotion 6 Comments

So I argue in “MarketWatch.” I’m telling you, my fellow Austro-libertarians, we have to consolidate as much as possible during the Obama Administration. Right-wingers are suddenly listening to us, when we would have been derided as black helicopter nutjobs during the Bush years. An excerpt:

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.

The housing market eventually collapsed, as all bubbles do. At this point, Ben Bernanke was at the helm of the Fed. Unfortunately, he got his policies out of Greenspan’s playbook, except Bernanke doubled down.

Rather than pushing short-term interest rates down to 1% as Greenspan did, Bernanke has pushed them down to almost zero percent. And in contrast to Greenspan’s 22% increase in the monetary base during a three-year period, Bernanke increased it by 94% in one year.

The unprecedented monetary stimulus from the Fed, in conjunction with the massive deficits of the federal government, did succeed in partially re-flating the stock market and stabilizing home prices. Time magazine named Bernanke its 2009 Person of the Year, and Obama administration officials are taking credit for nipping the Great Recession in the bud. Yet the parallels with the Greenspan episode are clear.

It makes no sense to “rescue” the economy by having politicians borrow and spend trillions of dollars. It also makes no sense to fix the horrible mistakes of the housing-bubble years by having the Fed create electronic money out of thin air to buy “toxic assets” from investment banks that would otherwise be insolvent.

The editor told the people at Pacific Research Institute that my article is the most-read today. Don’t worry, guys. When I’m sipping cocktails with Faber and hitting nightclubs with Roubini, I won’t forget those of you who were with me from the beginning.

6 Responses to ““Double Dip Looks Doubly Certain””

  1. Taylor says:

    When I’m sipping cocktails with Faber and hitting nightclubs with Roubini, I won’t forget those of you who were with me from the beginning.

    Of course, that day could have already come to pass back in May had you “done the right thing” after the Mises Circle, Bob. Well, the Faber part, anyway. I don’t really have any access to Roubini and his traveling carnival skanks.

    • bobmurphy says:

      I knew of (not knew) some of those girls in the Roubini pictures. I think you shouldn’t read too much into it. Sure they would stop by his apartment but I think they left by 11 to go out “for real.”

  2. Sideshow Bob Murphy says:

    Pacific Research Institute articles = first step to becoming Fed Reserve Chairman.

    A couple more articles and you’ll be nominated for sure next time around.

  3. von Pepe says:

    Taylor, did you ever consider that Bob was meeting with bigger hitters than Faber?

  4. Anon73 says:

    I can’t wait to tell people that “Yeah I was there when Bob Murphy was critiquing the irrational economic policies of the Federal Reserve. I was there when he published his dissertation on Capital Theory and lectured Hillsdale students on anarcho-capitalism and insurance companies of freedom. In fact, I was reading his columns back when he critiqued Jeremy Sapienza on anarcho-capitalist message boards!” Unfortunately they’ll say “Jeremy who? Anarcho-whatapalism?”, to which I won’t have a good response. 🙁

    • bobmurphy says:

      We’ll all catch up in Gitmo. I call top bunk.