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Thread: Note to Krugman: Greece Proves Keynesian Economics Wrong

  1. #41
    Havakasha is offline
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    He gives facts that prove Paul Krugman called the housing bubble in 2004 a D. Mr. Schiff's many wrong predictions he gives an A. Whats wrong witht this picture? lmfao

    Look over there....

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  2. #42
    SiriuslyLong is offline
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    Quote Originally Posted by Havakasha View Post
    He gives facts that prove Paul Krugman called the housing bubble in 2004 a D. Mr. Schiff's many wrong predictions he gives an A. Whats wrong witht this picture? lmfao

    Look over there....

    SiriuslyWrong's favorite strategy.
    You missed the point. These are orders of magnitude more poignant than what you've provided.


    Ron Paul in the House Financial Services Committee, September 10, 2003

    Mr. Chairman, thank you for holding this hearing on the Treasury Department's views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.

    I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.

    One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

    The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

    The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

    Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

    Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

    Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

    No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

    Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today's hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.


    Krugman's article was about blaming Greenspan.

    You don't get it do you?

  3. #43
    Havakasha is offline
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    I dont think you get it. You "triple dog dare" me to prove that Krugman predicted the housing bubble.
    I proved it and you cant acknowledged it. Why am I surprised. Not
    Krugman did more than just blame Greenspan.

    What you dont get is that Mr. Schiff's method is to say the same thing year after year after year
    and then call himself a genius when he gets one right. Brilliant.

    Whats more is that you cant bring yourself to acknowledge that MR. Krugaman was 100% right
    on his calls about Austerity. Remember this thread is about Keynes and Mr. Krugman has
    shown that stimulus is the right way to dig out of a serious recession. More and more countries
    are finally acknowledging that growth together with some pinpointed austerity is the preferred method.
    Last edited by Havakasha; 05-24-2012 at 10:34 AM.

  4. #44
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    Many people from the left were warning about the housing bubble, lack of regulation on wall street. etc.Yes much pain was inflcted on this country and its people. It should and could have definitely been avoided if people listened to Paul Krugman etc.

    Frankly Paul and Schiff have been wrong about too many things to think highly of them. I actually have researched Schiff more than Ron Paul. I do know that Ron Paul says some pretty wacky stuff. Its just a fact that Mr. Schiff has made some outrageously wrong predictions on the economy going back many years. I cant take him seriously. I do have concern that he doesnt hurt people that have followed him into some of his recommended investments.

    "SirIusly Long: " Go ahead and show us all...." I HAVE. Thanks for acknowledging it. You cant so you move the goal posts.

  5. #45
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    This is from Wikidpedia:

    Although an economic bubble is difficult to identify except in hindsight, numerous economic and cultural factors led several economists (especially in late 2004 and early 2005) to argue that a housing bubble existed in the U.S.[14][27][39][40][41][42][43][44] Dean Baker identified the bubble in August 2002, thereafter repeatedly warning of its nature and depth, and the political reasons it was being ignored.[45][46] Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his original publication of Irrational Exuberance in the year 2000.

    Dean Baker is a Democrat. Mr. Shiller is as well. Not sure about Robert Prechter.

    In early 2006, President Bush kind of denied the possiblity of a bubble. He said of the U.S. housing boom: "If houses get too expensive, people will stop buying them... Economies should cycle."[53]

    Home price appreciation has been non-uniform to such an extent that some economists, including former Fed Chairman Alan Greenspan (Republican) have argued that United States was not experiencing a nationwide housing bubble per se, but a number of local bubbles.[63]

    Former President Bush Federal Reserve Chairman Alan Greenspan had praised the rise of the subprime mortgage industry and the tools which it uses to assess credit-worthiness in an April 2005 speech.[100] Because of these remarks, as well as his encouragement of the use of adjustable-rate mortgages, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry that triggered the economic crisis of 2008.[101][102][103] Concerning the subprime mortgage mess, Greenspan later admitted that "I really didn't get it until very late in 2005 and 2006."[36]

  6. #46
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    Krugman has consistently warned of the current economic crisis. On May 27, 2005, Paul Krugman wrote, "In parts of the country there's a speculative fever among people who shouldn't be speculators that seems all too familiar from past bubbles - the shoeshine boys with stock tips in the 1920's, the beer-and-pizza joints showing CNBC, not ESPN, on their TV sets in the 1990's."

    At the time, Krugman asked the question, "what will replace the housing bubble when it bursts?" In issuing his relatively early warning, Krugman cited two telling stats. The National Association of Realtors estimated 23 percent of the homes sold in 2004 were bought as investments and Business Week reported that 31 percent of new mortgages were interest only. Far too many people were buying houses with no intention of living in them, or they were using their houses to stay afloat--two very bad indicators. "One way or another," Krugman warned, "the economy will eventually eliminate both imbalances."

    A few months later, Krugman explained in simplistic terms--a very valuable commodity for a columnist--what drove the housing bubble. "When people become willing to spend more on houses," he wrote, "say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on."

  7. #47
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    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.

  8. #48
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    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.”

  9. #49
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    You are aware are you not that Mr. Shiller was one of those economists that predicted the housing bubble and is
    the designer of the SHILLER-CASE housing index? I hope this isnt another Milton Friedman situation? lol.

    WHY is there such strong political support for fiscal austerity, for government cuts and layoffs, at a time of widespread unemployment?

    Maybe it’s because we have the wrong metaphor stuck in our minds, and it’s framing policy choices in a misleading way.

    Clearly, metaphors and other symbols carry real weight in our thinking, as has been shown by George Lakoff, a cognitive linguist at the University of California, Berkeley, and Mark Johnson, a philosopher at the University of Oregon. In their 1980 book, “Metaphors We Live By,” they argue, “Our ordinary conceptual system, in terms of which we both think and act, is fundamentally metaphorical in nature.”

    Our metaphors are like the icons on our computer screen, little pictures by which we condense complexities into manageable packets to refer to in our decision-making. Our brains may be hard-wired for them.

    Consider our current thinking about taxes and government spending. We seem caught up in a “family belt-tightening” metaphor, in which the nation is a family that has outspent its income and is trying to get back in control. The family must cut profligate spending, save and pay down debts. It’s a powerful thought, of course, because we know that mismanagement of household finances can lead to a family’s ruin.

    But perhaps the most important lesson conveyed by the great economist John Maynard Keynes is that this metaphor, when applied to the national economy, is fundamentally misleading: what is smart for the family is not smart for society as a whole. This idea, sometimes known as the paradox of thrift, is that when we all tighten our belts at once, the economy is so weakened that we end up failing to save more, and instead are all worse off. When that happens, some collective action — government stimulus — is needed.

  10. #50
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    Know lets get back to the thread that YOU started which was about Mr. Krugman and Keynes.

    I have demonstrated that Mr. Krugman predicted what the results of strict austerity programs would
    do to the various European countries (England etc.). Growth in terms of stimulus programs such as infrastructure
    spending etc were clearly a necessary ingredient. Not sure why you cant admit it?

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