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Thread: Note to Krugman: Greece Proves Keynesian Economics Wrong

  1. #31
    Havakasha is offline
    1. Alan Reynolds, Senior Fellow, Cato Institute:
    "No Housing Bubble Trouble,"Washington Times (January 8, 2005): "In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is."

    "Recession Fairy Tales," Townhall (October 5, 2006): "When it comes to homes . . . many people have spent the last four years fretting that the 'housing bubble' might end. That is, they worried that overpriced homes might become more affordable. This is not quite as nonsensical as worrying the price of oil might fall too much, but it's close."
    2. Kevin Hassett, Director of Economic Policy Studies, American Enterprise Institute:
    New York Times (July 25, 2004): "Another bubble-skeptic is Kevin Hassett, director of economic policy studies at the American Enterprise Institute and co-author of the fabled 'Dow 36,000,' which was published in 1999 when the Dow Jones index was around 11,000. Mr. Hassett says there is an ideological component to the belief in bubbles. Liberals, who tend to believe that government must step in to protect people from market imperfections, will likely see more of them. Conservatives, who like their markets unfettered, will see less. [EoC: What a classic line. Liberals win again, conservatives lose again—same old, same old.]
    "Mr. Hassett of the conservative American Enterprise Institute thinks housing prices will be pretty much O.K. He acknowledges there might be some bubble dynamics at play in some regions. But he argues that for the most part people are paying more for homes because their incomes are higher and interest rates are lower, reducing the cost to own a home.

    "Mr. Hassett expects that rising interest rates would raise this cost and home prices would then decline proportionately. But he sees no reason to expect a catastrophic decline. 'I don't think a catastrophe is very likely,' he says.
    3. James K. Glassman, Senior Fellow, American Enterprise Institute:
    "Housing Bubble?," Capitalism Magzine (May 24, 2005): "[W]hile such signs of speculation are troubling, there is little solid evidence that a real estate bubble is puffing up.
    "Even in places where prices are soaring, worries of a bubble could be overblown because higher prices appear grounded in good old fundamentals."
    4. Jude Wanniski, former associate editor of the Wall Street Journal & adviser to President Reagan:
    "There is No Housing Bubble!!," The Conservative Voice (August 13, 2005).
    5. Jerry Bowyer, Author of The Bush Boom:
    "Hate to Burst Your (Housing) Bubble: But there isn't one," National Review (July 5, 2006).
    6. Nicolas P. Restinas, Director, Harvard Joint Center for Housing Studies:
    "More Than a Bubble Keeps Housing Prices Sky-High," LA Times (May 20, 2004).
    7. Jim Cramer, Host of CNBC's "Mad Money" & Co-Founder,
    "House Beautiful," New York Magazine (December 8, 2003): "Housing bubble? What housing bubble? The signs are in place for a further run-up in real estate. Breathe easy, mortgage holders. There’s still no place like home."
    8. Christopher Flanagan, Head of ABS Research, J.P. Morgan:
    "Housing Outlook," J.P. Morgan Research, June 17, 2005 (no link): "[B]ased on what we know and see in terms of employment and interest rates, it is extremely difficult to see how five years from now we could be looking back and observing a historical 5-year growth rate of, say, less than 5%. That should be more than adequate to support the continued good credit performance of sub-prime mortgage pools.

    "It is important to understand — we can contemplate home price growth rates declining, albeit modestly, but we do NOT envision home prices declining!"

  2. #32
    Havakasha is offline
    ners, LLC:
    "What Housing Bubble?," Wall Street Journal (July 28, 2005): "There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices.
    "What we do have is a serious housing shortage and housing affordability crisis."
    10. Chris Mayer, Professor of Real Estate, Columbia Business School, and Todd Sinai, Professor of Real Estate, Wharton School:
    "Bubble Trouble? Not Likely," Wall Street Journal (September 19, 2005): "For the past several years, Chicken Littles have squawked that the sky -- or the ceiling -- is about to fall on the housing market. And it's tempting to believe them.
    "Yet basic economic logic suggests that this apparent evidence of a bubble is anything but. Even in the highest-price cities, housing is, at most, slightly more expensive than average."
    11. Jonathan McCarthy, Senior Economist, New York Fed, and Richard W. Peach, Vice President, New York Fed:
    "Are Home Prices the Next Bubble?," FRBNY Economic Policy Review (December 2004): "Home prices have been rising strongly since the mid-1990s, prompting concerns that a bubble exists in this asset class and that home prices are vulnerable to a collapse that could harm the U.S. economy.
    "A close analysis of the U.S. housing market in recent years, however, finds little basis for such concerns. The marked upturn in home prices is largely attributable to strong market fundamentals: Home prices have essentially moved in line with increases in family income and declines in nominal mortgage interest rates."
    12. David Malpass, Chief Economist, Bear Stearns:
    "So This is a Weak Economy?," Wall Street Journal (June 28, 2005): "[T]he litany against the U.S. economy is so ingrained and familiar that few disputed this spring's 'slowdown.' When strong data on income, employment, consumption and profits showed 3.5% first-quarter GDP growth and a continuation into the second quarter, the headlines shifted to other attacks -- adjustable-rate mortgages, a housing 'bubble,' the distribution of income -- rather than revising the slowdown story."
    13. Steve Forbes, CEO, Forbes, Inc.:
    Global Leaders Speakers Series (November 10, 2005): "[Forbes] maintained that there was no 'housing bubble' in the U.S. but there was an 'oil bubble' driven by speculators."

    And there is more.

  3. #33
    Havakasha is offline
    There is lots more where this came from. Took me about 15 minutes i think to find and post.

    Going to bed now. Big day of work ahead. I will get you more on krugman and others when i get the chance.

  4. #34
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post

    Greenspan and the Bubble

    Published: August 29, 2005
    Most of what Alan Greenspan said at last week's conference in his honor made very good sense. But his words of wisdom come too late. He's like a man who suggests leaving the barn door ajar, and then - after the horse is gone - delivers a lecture on the importance of keeping your animals properly locked up.

    Regular readers know that I have never forgiven the Federal Reserve chairman for his role in creating today's budget deficit. In 2001 Mr. Greenspan, a stern fiscal taskmaster during the Clinton years, gave decisive support to the Bush administration's irresponsible tax cuts, urging Congress to reduce the federal government's revenue so that it wouldn't pay off its debt too quickly.

    Since then, federal debt has soared. But as far as I can tell, Mr. Greenspan has never admitted that he gave Congress bad advice. He has, however, gone back to lecturing us about the evils of deficits.

    Now, it seems, he's playing a similar game with regard to the housing bubble.

    At the conference, Mr. Greenspan didn't say in plain English that house prices are way out of line. But he never says things in plain English.

    What he did say, after emphasizing the recent economic importance of rising house prices, was that "this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent." And he warned that "history has not dealt kindly with the aftermath of protracted periods of low-risk premiums." I believe that translates as "Beware the bursting bubble."

    But as recently as last October Mr. Greenspan dismissed talk of a housing bubble: "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely."

    Wait, it gets worse. These days Mr. Greenspan expresses concern about the financial risks created by "the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages." But last year he encouraged families to take on those very risks, touting the advantages of adjustable-rate mortgages and declaring that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

    If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late. There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.

    How bad will that aftermath be? The U.S. economy is currently suffering from twin imbalances. On one side, domestic spending is swollen by the housing bubble, which has led both to a huge surge in construction and to high consumer spending, as people extract equity from their homes. On the other side, we have a huge trade deficit, which we cover by selling bonds to foreigners. As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China.

    One way or another, the economy will eventually eliminate both imbalances. But if the process doesn't go smoothly - if, in particular, the housing bubble bursts before the trade deficit shrinks - we're going to have an economic slowdown, and possibly a recession. In fact, a growing number of economists are using the "R" word for 2006.

    And here's where Mr. Greenspan is still saying foolish things. In his closing remarks he suggested that "an end to the housing boom could induce a significant rise in the personal saving rate, a decline in imports and a corresponding improvement in the current account deficit." Translation, I think: the end of the housing bubble will automatically cure the trade deficit, too.

    Sorry, but no. A housing slowdown will lead to the loss of many jobs in construction and service industries but won't have much direct effect on the trade deficit. So those jobs won't be replaced by new jobs elsewhere until and unless something else, like a plunge in the value of the dollar, makes U.S. goods more competitive on world markets, leading to higher exports and lower imports.

    So there's a rough ride ahead for the U.S. economy. And it's partly Mr. Greenspan's fault.
    D+ and I'm being generous. Schiff and Dr. Paul set the gold standard for documentation. Krugman's article is an indictment of Greenspan. Look at the very last words. Just like a liberal to simply find blame. Dr. Paul presented a solution. Schiff provided several firm warnings. Krugman seeks to blame....

  5. #35
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    There is lots more where this came from. Took me about 15 minutes i think to find and post.

    Going to bed now. Big day of work ahead. I will get you more on krugman and others when i get the chance.
    Yes, a lot of folks did miss the call. Haven't you watched "Peter Schiff was right 2006 - 2007 2nd Edition"? Nothing exemplifies this point better than this 9+ minute clip.

  6. #36
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Add this guy to the list of those that missed, AND COULD HAVE DONE SOMETHING.

    Hey, Barney Frank: The government did cause the housing crisis

    Peter J. Wallison | The Atlantic December 14, 2011

    On December 9, The Atlantic published online an interview with Congressman Barney Frank. In it, he called me a "real extremist." This name-calling was not only false but also inappropriate to the seriousness of the issue -- which is whether government housing policy, and not the banks or the private sector, caused the 2008 financial crisis. I decided to respond to both Congressman Frank's statements and the questions he was asked about government housing policy and the financial crisis.

    We're hearing Republicans in the presidential primary blame the housing crisis on the Clinton-era push to lend more to poor people. In your view, what caused the mortgage crisis and subsequently the financial crash?

    Congressman Frank, of course, blamed the financial crisis on the failure adequately to regulate the banks. In this, he is following the traditional Washington practice of blaming others for his own mistakes. For most of his career, Barney Frank was the principal advocate in Congress for using the government's authority to force lower underwriting standards in the business of housing finance. Although he claims to have tried to reverse course as early as 2003, that was the year he made the oft-quoted remark, "I want to roll the dice a little bit more in this situation toward subsidized housing." Rather than reversing course, he was pressing on when others were beginning to have doubts.

    His most successful effort was to impose what were called "affordable housing" requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy--in other words, prime mortgages--but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

    At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007. Despite Frank's effort to make this seem like a partisan issue, it isn't. The Bush administration was just as guilty of this error as the Clinton administration. And Frank is right to say that he eventually saw his error and corrected it when he got the power to do so in 2007, but by then it was too late.

    It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies--all under congressional and HUD pressure--followed suit. This continued through the 1990s and 2000s until the housing bubble--created by all this government-backed spending--collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis.

    Congressman Frank makes assertions about who was responsible, but he, like all those who hold his position, have no data. He says that the banks were responsible, but cannot challenge the numbers I have outlined above. These numbers show, beyond question, that it was government housing policy that caused the financial crisis. Even he has admitted it. In an interview on Larry Kudlow's show in August 2010, he said "I hope by next year we'll have abolished Fannie and Freddie ... it was a great mistake to push lower-income people into housing they couldn't afford and couldn't really handle once they had it."

    Have the Republicans "blame[d] the housing crisis on the Clinton-era push to lend more to poor people" as The Atlantic's question to Frank suggested? Of course not. Those who took advantage of the opportunity offered by the government's policies are not to blame for the crisis, just as those who make use of Medicare or other government programs are not responsible for the government's current debt problems. It is the government's fault for offering a housing finance program without making any effort to prevent the deterioration in mortgage underwriting standards.

    Finally, Congressman Frank calls me an "extremist" and says that I blamed the housing crisis on the Community Reinvestment Act. That just shows he hasn't read anything I've written, but remains chained to his partisan prejudices. I was a member of the Financial Crisis Inquiry Commission, appointed by Congress to investigate the causes of the 2008 financial crisis. I dissented from the FCIC's majority report, and in my dissent, I used the data above to indict government's housing policy. The Community Reinvestment Act (CRA)--which required banks to make mortgage loans to borrowers that were riskier than their normal loans--was certainly a part of the same government-quota approach that underlay the affordable housing requirements and was strongly supported by Congressman Frank. However, as far as I can tell, CRA was a relatively small contributor to the crisis, when compared to the GSEs and the affordable housing requirements. In any event, the FCIC acquitted the CRA from any responsibility for the crisis before it even began its study, and resisted all my efforts to find out more about the effect of the Act.

    You said Fannie Mae and Freddie Mac did have a role in pushing this along. How heavily do you think they contributed?

    Congressman Frank's response was "They were not the major factor. Let's put it this way: I think you would have had a crisis without them." Once again, Frank makes assertions without numbers. Of the 19.2 million subprime and low quality loans that were on the books of government agencies in 2008, 12 million (about 62%) were held or guaranteed by Fannie and Freddie. No one who has grasped the significance of these numbers--and there is much more data in my dissent--could believe that Fannie and Freddie were "not a major factor." It was the unprecedented number of delinquencies and defaults among these mortgages, as I noted above, that drove down housing prices all over the country and caused the financial crisis. The data and my analysis led me to a conclusion that is exactly the opposite of Congressman Frank's: if it hadn't been for the government's housing policy, there would not have been a financial crisis.

    In the presidential race, how would you grade Republicans' grasp of the history of the financial crisis, and would you say they're distorting it?

    The answer is here:

    The antithesis of Dr. Paul. Who was right, and who was wrong?

    Does the "extremist" comment sound famaliar? It must be a liberal tactic.
    Last edited by SiriuslyLong; 05-22-2012 at 01:25 PM.

  7. #37
    Havakasha is offline
    You will notice Mr. siriuslyWrong's very special brand of ignoring the fact that I answered his "triple dog dare" with information that demonstrates without a shadow of doubt that Mr. Krugman and others of the Democratic persuation were warning about the housing bubble way back in 2004 (some say even 2002).

    Mr. Schiff and Mr Paul have been predicting doom and gloom for the last 20 years and continuing to call for it in the future (hence Schiff's new book). There is a reason that Mr. Schiff's investors were down 40 to 70% in the last # of years. He has made an incredible #
    of wrong predictions including calling for hyperinflation in 2011, 10 year treasury's to rise to 6% in 2011, and a catastrophic stock market crash around Jan. of 2011 etc. He is also predicting that either the Dow will reach 1,400 or gold will reach $12,000 in the next 1 and 1/2 years. He sprays gloom darts all around the room and occassionally gets one right. I listened to him on Bloomberg news today when i was driving and you could hear the skepticism and incredulity of the people interviewing him with regards to some of the flippant answers he was giving without any evidence to back them up.
    Last edited by Havakasha; 05-23-2012 at 12:18 AM.

  8. #38
    Havakasha is offline
    More right wing distortions. Hence the reason Mr. SiriuslyWrong knows nothging about Mr. Krugman's record.
    Beck falsely claimed "bean head" Paul Krugman "missed" the housing bubble
    June 24, 2009 8:49 am ET

    SUMMARY: Glenn Beck falsely claimed that Paul Krugman "missed the industry's $8 trillion housing bubble." In fact, Krugman wrote that he was "getting worried" about a "real estate bubble" as early as 2002.

    During the June 23 edition of his Fox News program, Glenn Beck falsely claimed that Nobel Prize-winning economist Paul Krugman is one of "at least a dozen of the same economic bean heads who missed the industry's $8 trillion housing bubble." In fact, Krugman began "getting worried" about a "real estate bubble" as early as 2002, when he wrote in his New York Times column:

    "More and more people are using the B-word about the housing market. A recent analysis by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.
    Moreover, Krugman wrote in May 2005 that "America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble:

    But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we'd be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.

    That's why it's so ominous to see signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.

    Some analysts still insist that housing prices aren't out of line. But someone will always come up with reasons why seemingly absurd asset prices make sense. Remember "Dow 36,000"?
    Also, in August 2005, Krugman noted that "it's an economy driven by real estate" and that "given current prices and our dependence on foreign lenders, houses aren't safe at all":

    So it's an economy driven by real estate. What's wrong with that?

    One answer is that it has been a pretty disappointing recovery. Two new reports, one from the Center on Budget and Policy Priorities and one from the Congressional Budget Office, compare the current economic expansion with other postwar recoveries. By any measure except corporate profits, which have done very well, this one comes up short.

    Even the good months would have been considered subpar in the past: the administration hailed last month's job growth as something wondrous to behold, yet there were 68 months during the Clinton years when employment grew faster.

    Still, the economy is expanding. But because that expansion depends so much on real estate -- without the housing boom, the economic picture would look dismal indeed -- you have to wonder how much to trust it.

    I've written before about the reasons to believe that current house prices in much of the country represent a bubble. When that bubble begins to deflate, so will housing-related employment.

    Beyond that, there's the disturbing point that we're paying for the housing boom (and the military buildup and tax cuts) with money borrowed from foreigners.

    Now, any economics textbook will tell you that it's fine to borrow from abroad if the money is used to expand the economy's productive capacity. When 19th-century America borrowed from Europe to build railroads, it was also enhancing its ability to repay its debts later. But we aren't borrowing to build productive capacity. As a share of G.D.P., investment other than housing construction is below its average between 1980 and 2000, and way below its level at the end of the 1990's.

    In other words, a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle.

    How solid, then, is America's economic recovery? The British have a phrase that applies: "safe as houses." Our economy is as safe as houses. Unfortunately, given current prices and our dependence on foreign lenders, houses aren't safe at all.
    From the June 23 edition of Fox News' Glenn Beck:

    BECK: Is there any wonder why 52 percent of Americans say the stimulus is working? Fifty-two percent, that's down 7 percent in two months. Confidence in the Midwest is dropping faster than any place else.

    If you look at Elkhart, Indiana, this -- I love this -- this is the R.V. capital of the world, where Mr. Green -- Mr. Clean Energy, Barack Obama, launches the stimulus program at the R.V. capital of the world.

    The unemployment rate is 19.2 percent now, and that's not the worst place in America. And yet, at least a dozen of the same economic bean heads who missed the industry's $8 trillion housing bubble -- yeah, those guys -- including our best bud, the 2008 Nobel Prize winner Paul Krugman -- they're now calling for a third stimulus.

    Why are we listening to these crowds? I mean, most of them didn't get into specifics, but former Clinton treasury official Brad DeLong suggested guarantee all of the states' debt, all of them, all 50 states, just take that and just guarantee it. And, why don't you throw -- let it -- let it ride, put another $500 billion in aid on top.

    Let me ask you something. We have survived worse, but we haven't had our event yet. How do we survive this with our parents? You think America's family is going to survive? The answer is yes -- but in what condition? We're all going to be living under a bridge soon, fending off bums with a beer bottle.
    Last edited by Havakasha; 05-23-2012 at 12:21 AM.

  9. #39
    Havakasha is offline
    Robert Murphy:

    "OK after browsing through his archives circa 2005, I must retract my earlier criticism of Paul Krugman. For sure, Krugman did identify the housing bubble before many other analysts (including me), and so he’s not bluffing when he says nowadays that he called it. Also, people who comment at his site should be a little more nuanced instead of saying things like, “None of you Keynesian wizards saw this coming, so why should we listen to you now? Only Peter Schiff and the Austrians predicted the crash.”

  10. #40
    SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    Quote Originally Posted by Havakasha View Post
    You will notice Mr. siriuslyWrong's very special brand of ignoring the fact that I answered his "triple dog dare" with information that demonstrates without a shadow of doubt that Mr. Krugman and others of the Democratic persuation were warning about the housing bubble way back in 2004 (some say even 2002).
    Yeah, and I gave it a "D+". Again, Dr. Paul and Schiff are the gold standard (no pun intended) on this prediction.

    Barney Frank is of the democratic persuation.................

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