Danger from the Euro, Malpractice from the Fed
That’s the title of my inaugural piece at the Washington Times. An excerpt:
Note the pattern over the last decade: Instead of giving us a painful but standard recession, Alan Greenspan gave us the illusion of a quick recovery in the early 2000s. When the housing bubble burst, it was no longer a mere recession we faced, but the collapse of major investment banks. Once again, the Fed intervened to spare Americans such a catastrophe.
Two years later, it was now not banks but small governments that were at risk of going bankrupt. But as usual, the central banks rushed to the rescue, apparently solving economic woes by creating dollars and euros out of thin air.
Then a year later, the problems resumed. Now it wasn’t just small governments at risk, but large governments and a major currency.
The pattern is clear: Printing up money (or more accurately, creating electronic reserves by purchasing assets and expanding the central banks’ balance sheets) can kick the can down the road, but it doesn’t solve the underlying structural problems with the economy. By delaying the needed adjustments and allowing consumers to persist in their delusions of prosperity, these interventions actually allow the problems to fester.
“Printing up money (or more accurately, creating electronic reserves by purchasing assets and expanding the central banks’ balance sheets) ”
A more accurate phrase.
‘Printing up money (or more accurately, SWAPPING electronic reserves for private sector assets and expanding the central banks balance sheets)’
Everyone always seems to forget for every purchase a sale must take place! Consider this free advice; I won’t expect any royalties.
🙂
In all seriousness, congrats on getting a column in WaPo (I assume this was the first?)
But, I’m confused what I’m suppose to take away from your article? Is the conclusion ‘Americans need to realize that the technocrats at the helm don’t really know what they’re doing.’ because if so, you’re not breaking new ground. And your description of who/what/where/how is no different than any other neo-liberal article written in the last few years.
What are you adding to the debate? Thus far, I don’t see much.
> if so, you’re not breaking new ground
> What are you adding to the debate? Thus far, I don’t see much.
It’s clear to me Bob’s intention was not to break new ground in economic theory but simply to provide insight for WaPo’s target audience, who are presumably not Econ PhDs.
I’m pretty sure I’ve had a column in the WaPo before, but this wasn’t one of them.
Congrats Bob, looks like your breaking into the mainstream. Just remember your roots and don’t go Greenspan on us
The pattern is clear: Printing up money (or more accurately, creating electronic reserves by purchasing assets and expanding the central banks’ balance sheets)
What does this have to do with the recovery after the dotcom bust? Or are you arguing against the Bush tax cuts for the rich?
The full quote(“Printing up money … can kick the can down the road, but it doesn’t solve the underlying structural problems with the economy.”) explains the post-dotcom scenario as can-kicking rather than a true recovery.
The post-dotcom recovery was not based on money printing, unless you consider the Bush tax cuts for the rich as money printing.
And European countries have not been printing money because they can’t. Only the ECB has been doing it to a small extent.
Printing money is not the pattern.
This is debatable. Even Greenspan and Krugman agree that lowering interest rates and increasing the money base had a lot to do with spurring recovery.
Lowering interest rates is not part of the pattern mentioned in the article.
Mammoth,
Here is what I saw skimming Bob’s Washington Times article
To judge whether the latest technocratic “solution” will work as advertised, it’s useful to step back and look at the bigger picture. Readers may recall that in the late 1990s the Nasdaq surged because of the “dot-com bubble.” After it popped, and especially after the 9/11 attacks, the U.S. was poised for a severe recession. Yet Fed Chairman Alan Greenspan slashed interest rates from 6.5% down to 1% by June 2003, and held them there for a year.
and, further
Ben Bernanke, who would become Greenspan’s successor, consistently failed to see the dangers in housing and the broader economy, over the course of years. Yet when the new bubble burst on his watch, Bernanke went to the Greenspan playbook: He cut interest rates, this time pushing them essentially all the way down to zero, the lowest level in the postwar era.Besides pushing down interest rates as far as they would go, central banks and governments around the world also engaged in massive bailouts and stimulus spending. This was what the experts told us was necessary to avert a collapse in the banking system.
MamMoTh, do you mean to tell me that you don’t know I blame the Greenspan Fed for the housing bubble? Is this thing on? *taps microphone*
No, I am asking you if you opposed the Bush tax cuts for the rich, which is the only thing that could fall under the printing money label.
MamMoTh, suppose Greenspan literally printed off a billion dollars in new $100 bills, dropped them by helicopter on random Americans, and they kept tax rates the same. Are you saying that wouldn’t have counted as printing money?
I am saying the tax cuts are the only thing that could compare to money printing.
So I wonder if you opposed them at the time.
Mammoth can you answer a simple question? If Greenspan prints money and the IRS doesn’t change the tax rate, does that count as money printing or not?
If Greenspan prints money then it counts as money printing.
Not necessarily as deficit spending though, as in QE.
OK then. So Greenspan printed money, and that’s the “money printing” to which I refer when I say that Greenspan printed money. Glad we resolved that.
And to answer your question, no, of course I didn’t oppose tax cuts. They were done in an inefficient way (i.e. for the same theoretical impact on revenues, they could have given a much bigger supply-side stimulus), but I’m always in favor of tax cuts.
OK, then you were in favour of printing money at the time?
Of course not.
A reduction in theft is identical to an increase in theft (reduction in tax equal to increase in debasement)?
You used to make incoherent arguments based on false knowledge, but you’ve devolved into delusional waste.
“Printing up money (or more accurately, creating electronic reserves by purchasing assets and expanding the central banks’ balance sheets) can kick the can down the road, but it doesn’t solve the underlying structural problems with the economy.”
It doesn’t solve the structural problems, sure. But it may allows the economy to get back to a monetary equilibrium and create a framework where the structural problems can start to work themselves out . Of course this will require a clear understanding that the money supply will need to be adjusted downwards again as the demand for money returns to normal in order to maintain the equilibrium. Given the track record of those in charge at the fed this is a risky policy – but given the alternative (years of economic stagnation with the structural problems worsened by more fiscal policy and the direct government interventionist that will accompany it) this option has to be discussed.
Excellent song by the Mighty Mighty Bosstones, and a brilliant choice for Karaoke.
I think they call it “The Fiscal Stimulus Song” or something along those lines.
Austerity song would be a more appropriate title.