Replies

The idea that excessively loose policies is the culprit misses the point:

I'm staying with Dr. Frank Shostak on this one. Excessive liquidity and easy money cause misallocation of funds and excess capacity. Bubble economics. Once the bubble can no longer be sustained, recession and possible deflationary depression follow. All Greenspan is doing now is pumping more alcohol into the drunk rather than letting him go through the necessary detox period. Like the drunks internal system, the quick fix will eventually fail with horrid consequences.

Richard W.

"I'm staying with Dr. Frank Shostak on this one. Excessive liquidity and easy money cause misallocation of funds and excess capacity. Bubble economics."

Sure. But this is circular logic is my point... we have had expansions in credit, in the 1950s and 1980s, and what followed was ... more growth.

Greenspan himself made the point in 1998 or so that you couldnt tell except in hindsight whether a credit expansion was sustainable or not. *Thats* my point! How can you blame the boom of the 1920s when in fact there was *plenty* of evidence to suggest it *was* sustainable, and the imbalances in NO WAY REQUIRED a huge depression to correct?!?

"Once the bubble can no longer be sustained, recession and possible deflationary depression follow. "

Not so. We've had panics and contractions like 1906 and 1990, of various seriousness and lengths that corrected imbalances.

There is nothing from the 1920s that suggests it *required* a 10 year depression to correct. Something more akin to 1906 or 1987 would be quite possible were it not for bad decisions MADE AFTER 1929's INITIAL CRASH.

"All Greenspan is doing now is pumping more alcohol into the drunk rather than letting him go through the necessary detox period. Like the drunks internal system, the quick fix will eventually fail with horrid consequences."

Tight money in 1930s was hardly the answer (and yes, the money was excessively tight, that was Freidman's point and it has not been refuted), so why think it would work here?