CEPR - Center for Economic and Policy Research

Multimedia

En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Economist Who Could Not See $8 Trillion Housing Bubble Warns of the Need to Reduce Deficits

Economist Who Could Not See $8 Trillion Housing Bubble Warns of the Need to Reduce Deficits

Print
Tuesday, 08 June 2010 04:14

That could have been the headline of an NYT article that reported on Federal Reserve Board Chairman Ben Bernanke's warning that the government had to reduce its budget deficit. The article quotes Mr. Bernanke as saying:

“We can see what problems can arise in a country if investors lose confidence in the fiscal position of that country, so it is very important that we address this problem.”

This might have been a good place to point out that Mr. Bernanke could not see the $8 trillion housing bubble whose collapse gave us the worst economic crisis since the Great Depression. It could have also pointed out that it is not clear what he meant, since Greece his presumed point of reference, has very little in common with the United States. Greece is a small economy that is far more dependent on international trade than the United States. It also does not have its own currency.

For these reasons, economists who can see an $8 trillion housing bubble do not think that the experience of Greece tells us: "what problems can arise in a country if investors lose confidence in the fiscal position of that country." The NYT erred badly in not noting Mr. Bernanke's poor track record in discussing his latest pontifications on economic policy.

Comments (1)Add Comment
...
written by izzatzo, June 08, 2010 7:55
“We can see what problems can arise in a country if INVESTORS lose confidence in the fiscal position of that country, so it is very important that we address this problem,”


Before and during the bubble: "You too can be an INVESTOR. It's no longer for just big players on Wall Street. Now it's for everyone, ordinary consumers can invest as small amount as they like. It's the new retirement plan as well. Don't depend on defined benefit pension plans or Social Security, INVEST in employer sponsored plans with much higher returns. Not only that, even your home has become a great INVESTMENT. You won't regret it."

After the bubble burst: "Where'd all the small INVESTORS go? They must have lost confidence and stopped INVESTING. Why aren't they working? Wonder how that happened? Who could have known? Oh well, we still have large INVESTORS who managed to pull themselves up by the bootstraps and survive.

We'll have to cut the deficit to the bone with an austerity program, including reductions in Social Security, so the large INVESTORS will have enough incentive to pull us out of this mess, otherwise they might stop INVESTING as well and then we'll really be in trouble, like Greece.

After all, the total level of GNP spending necessary to create jobs is not the objective. The objective, as always, is INVESTING.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.

busy
 

CEPR.net
Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives