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northernlad5
01 May 13 00:42
Joined:
Date Joined: 21 Feb 11
| Topic/replies: 5,802 | Blogger: northernlad5's blog
Paul Krugman is a US economist and a Nobel Prize winner.

“Both the new British budget announced on Wednesday and the rhetoric that accompanied the announcement might have come straight from the desk of Andrew Mellon, the Treasury secretary who told President Herbert Hoover to fight the Depression by liquidating the farmers, liquidating the workers, and driving down wages. Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis.

“The British government’s plan is bold, say the pundits – and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers – the equivalent of almost three million layoffs in the United States – at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.

“Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative.”

Source: New York Times,
Pause Switch to Standard View Krugman:-Tories are using the deficit...
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Report mickstick May 9, 2013 10:59 AM BST
It's very simple Mickstick.  Tax is government income which is balanced against their expenditure.  Clearly if you advocate Keynes then you should advocate reducing government expenditure during booms, which he doesn't mention.  He only complains about tax cuts (which of course can contribute to a deficit but it is only one side of the equation)

Now remind me, who is on a lonely betting site with an audience so small they would fit in my car and who has a column in the NY Times discussing monetary issues? Doesn't mean he is correct and you are wrong, but as a stats man, what are the percentages?
Report Java May 9, 2013 11:03 AM BST
I've just trying to explain the theory of Keynes, but if you don't want to listen don't worry.
Report boris-the-animal May 9, 2013 11:03 AM BST
java

No Boris.  That is what he thinks.  Not what has been proved to be correct.  They are very different.

The fact is the countries that suffered least/did not suffer from the 2008 Great Recession are those like China, Australia, Canada, South korea etc are those that gave a big Keynesian stimulus to their economies when others only cared about their banks and allowed the recession to take hold.

So the stimulus allowing those export dependent countries to escape the global downturn is proof enough Krugman was correct.
Report Java May 9, 2013 11:06 AM BST
"when others only cared about their banks and allowed the recession to take hold"

Could it be that the "others" were the ones with large banking sectors Boris and hence had deeper recessions?  Well goodness me, so it is.
Report boris-the-animal May 9, 2013 11:12 AM BST
I am not sure you only use the size of the banking sector because the size Germany's banking sector is probably smaller than those of either Canada or Australia.

Germany suffered a steeper recession than many other countries with a larger banking sector.
Report mickstick May 9, 2013 11:21 AM BST
I've just trying to explain the theory of Keynes, but if you don't want to listen don't worry

I have enough patronising to cope with indoors, I do not need you as well. If I wish to theorise about Keynes or any other economist I will ask those qualified to do so. And I'm not worrying.
Report Java May 9, 2013 11:31 AM BST
"Germany suffered a steeper recession than many other countries with a larger banking sector. "

Possibly because they were busy bailing out Greece and Portugal?
Report Angel Gabrial May 9, 2013 11:37 AM BST
The yank seems to miss a key fact that the Welfare state is expanding under the Tories.

Yes just at a slower rate. The Tories will always be known as the nasty party because they fail to protect the image of low paid workers or the genuine job seekers. If employers can`t or won`t pay a living wage then the Tories should make it clear that Tax Credits are a subsidy to the employers who are relying on the state to make up there wage bill.

They don`t make that argument which suggests they only see those on benefits as the takers.
Report northernlad5 May 9, 2013 11:53 AM BST
I'll strike a deal with you northernlad.


Eeternaloptimist
01 May 13 15:01
Joined:

28 Jun 10
| Topic/replies: 17,671 | Blogger: Eeternaloptimist's blog


Instead of carpet bombing the forum with their latest pronouncements how about you let us in on their track record?

Can you give us a list of these economists who predicted the financial crash and who warned Gormless Clown that what he was doing between 2002 and the top of the crack up boom had no relation to Keynesian thinking?

If the list amounts to anything I'll vote Labour tomorrow.

Deal?



My previous post has been removed asking EO to honour his promise, but never mind.

I've used EO's own words as above!

No good asking Java to stand firm EO, as I suggested and mick has proven & even Java accepts. Krugman clearly did predict the crisis prior to it happening - I think that has been clearly proven beyond doubt.

So EO I will of course expect you to start making plans to move back from Scotland as you cant vote Labour there (Scot Lab not acceptable).

In time for the 2015 GE will do & glad to win your vote!
Report Eeternaloptimist May 9, 2013 11:54 AM BST
Mick

LOOK BEHIND YOU. OH YES HE DID. By predicting a recession and a banking crisis caused by the bursting of the housing bubble he did just that. TWO FULL years before it did eventually happen, how much warning did they need.

Sorry Mick but you are wrong on two counts:

At the time Krugman was saying this he was criticising Greenspan for not addressing the issue two years previous to that. But two years previous to that he was advocating the policy which Greenspan had enacted. So he advocates a policy and then when it goes wrong he criticises those who implement his policy. Easy game this economics lark.

Secondly, I can find no evidence of him predicting either a recession or banking crisis. Once again he hedged his bets at the time by suggesting that there may be a possible recession.

This has nothing to do with what I think of Krugman. This is an analysis of what Krugman said and when he said it. Like I said previously there were indeed people who were quite clear what they thought was going to happen and they were right. Krugman was not one of them.
Report Eeternaloptimist May 9, 2013 11:55 AM BST
Same point to you lad. Where does Krugman predict the banking crisis?
Report Eeternaloptimist May 9, 2013 11:56 AM BST
And just before I pucker up where did he tell Gormless not to deficit spend during the boom?
Report mickstick May 9, 2013 11:56 AM BST
You'll get the usual multi faceted answer. It was a play on words
Report northernlad5 May 9, 2013 12:01 PM BST
Come on EO, Krugman clearly predicted the crisis, If you have any semblence of honour you will at least have the decency to admit it!
Report Eeternaloptimist May 9, 2013 12:03 PM BST
Nope Krugman was quite explicit in being non committal. He talks of a possible recession. Where does he talk about the crisis which ensued? I know Schiff et al did. It might rain tomorrow if there is enough cloud and the sun doesn't shine. Can I be a weather man?
Report mickstick May 9, 2013 12:03 PM BST
Amanda Terkel thinks he predicted the crash. She is far more qualified than you to say so IMO.
Report Eeternaloptimist May 9, 2013 12:03 PM BST
Show me lad. Where did he predict the crisis?
Report northernlad5 May 9, 2013 12:03 PM BST
And there is no doubt Gordon Brown will have been aware of Krugman's concers at the time.

A deal's a deal!
Report boris-the-animal May 9, 2013 12:04 PM BST
Possibly because they were busy bailing out Greece and Portugal?

Another red herring by Java!!! Germany did not bail any of those 2 in 2008 so find another excuse for your theory!!!Crazy
Report Eeternaloptimist May 9, 2013 12:04 PM BST
Then you can show me where she cites his words at the time proving that he predicted it. Shouldn't be too hard.
Report northernlad5 May 9, 2013 12:05 PM BST
Even Java admits it...no good trying to ask him to "hold firm".
Report northernlad5 May 9, 2013 12:08 PM BST
Seems you can never trust an EO in whatever guise he takes!
Report mickstick May 9, 2013 12:08 PM BST
I have to show you nothing. Your the one saying he did not. I think I have shown he did.

Same old same old. You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.
Report Java May 9, 2013 12:09 PM BST
"Another red herring by Java!!! Germany did not bail any of those 2 in 2008"

Eh?  So only actions in 2008 dictate how rapidly you can come out of recession?  Goodness me Boris.
Report boris-the-animal May 9, 2013 12:30 PM BST
Java

None of the eurozone bailing out started until 2010 and Germany experienced high growth during that year.

I was talking of stimulating the economy in 2007-08 to stop recession getting hold but Germany experienced a pretty harsh recession before a strong recovery in 2010 and 2011.
Report mickstick May 9, 2013 12:41 PM BST
Real-World Economics Review is an economics journal that in 2010 polled their readers and asked them to vote for "the three economists who first and most clearly anticipated and gave public warning of the Global Financial Collapse and whose work is most likely to prevent another GFC in the future." Revere Award for Economics winners and details are here and documentation of the predictions by the finalists are included in Foresight and Fait Accompli: Two Timelines for the Global Financial Collapse. The Revere finalists in voting order below included four not previously identified by Bezemer.

Steve Keen
Nouriel Roubini
Dean Baker
Joseph Stiglitz
Ann Pettifor
Robert Shiller
Paul Krugman
Michael Hudson
Wynne Godley
George Soros
Kurt Richebächer
Jakob Brøchner Madsen[/b]
Report boris-the-animal May 9, 2013 12:54 PM BST
EO

So you really expect Krugman or other economists to have predicted the precise extent of the coming crisis?

The thing is alot of them had been predicting big recessions for so many years based on their models but they did not happen then probably due to government interventions.

But real life does not work like that and we needed various factors to have aligned together for the crisis to be as brutal.

Economy is not and will never be an exact science so it would not be possible to predict events accurately but some just got lucky and got their predictions right before the Great Recession.
Report boris-the-animal May 9, 2013 1:25 PM BST
EO talks about Peter Schiff when the guy has zero macroeconomic background apart from that of being being a successful stockbroker and self publicity.

Peter Schiff has also been predicting the collapse of the US dollar, hyperinflation or the price of gold to rise to $5000 over the past 5 years and we are still waiting!!!

The reality is he got lucky he made the right call about the coming crisis back in 2005 and ever since he has been milking it even though he continues getting all his predictions wrong.Wink
Report clive82 May 9, 2013 1:50 PM BST
The Tories will always be known as the nasty party because they fail to protect the image of low paid workers or the genuine job seekers. If employers can`t or won`t pay a living wage then the Tories should make it clear that Tax Credits are a subsidy to the employers who are relying on the state to make up there wage bill.

Not sure it is the Government's role to protect the image of low paid workers. Despite your nasty party nonsense the fact is this Government is protecting their living standards.

As for tax credits why is this a Tory problem? Who were the architects of the current monolithic tax credit regime? The two Ed's fingerprints are all over it, they used our money to buy votes and now as with all these handouts people will scream blue murder if anyone tries to reform them. (And for reform read remove!)
Report Ski-Wiz May 9, 2013 2:14 PM BST
The fact is the countries that suffered least/did not suffer from the 2008 Great Recession are those like China, Australia, Canada, South korea etc are those that gave a big Keynesian stimulus to their economies when others only cared about their banks and allowed the recession to take hold.

The situation in those countries differ from UK, EU and USA. Those countries above managed their budgets and debts properly. Canada was the prime example how they sorted their 'socialist tendencies' to over-spend during the mid 1990s.
Report boris-the-animal May 9, 2013 2:30 PM BST
Clive

The tax credits are nothing more than changing the name of the old Family Credit that was introduced by Thatcher in 86 which also replaced another welfare benefit- Family Income Supplement introduced by Heath in 71!!!

You can claim that Labour are the architects but in reality that was just the continuation and enlargement of a Tory benefits culture!!!Laugh

http://www.ifs.org.uk/bns/bn3.pdf
Report Angel Gabrial May 9, 2013 2:33 PM BST
As for tax credits why is this a Tory problem? Who were the architects of the current monolithic tax credit regime?

Well done Clive, like a cat to the cream you ignore my comment that it is due to employers not paying a living wage who are the cause of the Tax Credit subsidy.

Carry on with the `handout` carp but refuse to mention the living wage or other causes of the problem. Yes, Labour are useless we all know that but only realising that does not address the problem.
Report boris-the-animal May 9, 2013 2:39 PM BST
Ski-Wiz

The fact is Canada still had a much higher debt load than the UK before the crisis but they were still able to spend alot more to stimulate their economy during the heat of the financial crisis unlike us.

So I am not sure you can claim they managed debts properly apart from in the sense that they spent so much it helped their economy quickly recover and grow quickly.
Report Java May 9, 2013 2:43 PM BST
Leaving aside blame, why any sane politician thinks it is a good idea to tax someone and then give it back as opposed to just not taxing them in the first place is beyond me.
Report Angel Gabrial May 9, 2013 3:04 PM BST
Yep, but at the moment it is calculated on the previous years income. It should be simplified to up the allowance to a calculation of 40 hours x bmw.

UKIP have suggested this.
Report boris-the-animal May 9, 2013 3:12 PM BST
Taxing everyone to then give it back to them give more people the sense of contributing to society rather than giving them the impression that only the top 20-30% are genuine contributors and the rest are leeches.

You may think that it is wasteful but it works in Scandinavian countries where people have great trust in the state partly because of seeing that everybody contributes and gets something back.
Report boris-the-animal May 9, 2013 3:19 PM BST
We all know why so many Ukippers would like to remove poor people from paying taxes altogether since they advocate depriving voting rights to these same people as they don't pay tax!!!LaughLaughLaugh
Report Angel Gabrial May 9, 2013 3:24 PM BST
Oh i thought was just EOGrin...He took the UKIP idea that it was dangerous to let just the unemployed vote. EO was suggesting only the `earners` who pay tax could vote.
Report Java May 9, 2013 3:54 PM BST
Boris - you don't give people much credit for intelligence.  If they pay 10k in tax and get 5k back, don't you think they can work out 10-5 = 5?
Report Java May 9, 2013 3:56 PM BST
Or will they only be comfortable when the State lies to them and tells them they have contributed 10k?  Thank goodness you will never be anywhere near decision making on policy with your madcap ideas.
Report boris-the-animal May 9, 2013 4:08 PM BST
Java

The fact is that is what governments already do whether you like it or not. I don't need to be in a position of power to explain to you the rationale for doing it.

The fact is most people would prefer to be given a universal benefit as a cash payment rather than a taxcut of the same value in lieu.
Report clive82 May 9, 2013 4:09 PM BST
Boris regardless of their previous incarnations the fact remains that between 2003-10 Labour spent £171 billion on tax credits growing an already bloated welfare budget by 60%. Curiously the these spending frenzies were accelerated in the run up to the 2005 and 2010 elections!

Angel - How can employers be held to be more culpable then the politicians who have brought in these handouts? The lack of a living wage is a by-product of this rancid whitehall conspired racket.
Report Angel Gabrial May 9, 2013 4:19 PM BST
clive

My point was at the moment it`s the employee`s who are deemed more culpable without the employers being mentioned. Yes i agree regarding the whitehall conspired racket, but when we are talking about welfare and tax credits lets not point the finger at the recipients who are working for below a living wage.
Report clive82 May 9, 2013 4:26 PM BST
We are in danger of agreeing Gabrial... but what happend to that third tower?!
Report Angel Gabrial May 9, 2013 4:58 PM BST
Office fires brought it to it`s kneesCool
Report boris-the-animal May 9, 2013 5:22 PM BST
Clive

I know that the Right disagrees with that principle but one of the goals of taxation is to redistribute wealth and tax credits were doing precisely that.

So I don't actually disagree with the principle of the state topping up the wages of the low paid workers and make certain jobs more viable than they would otherwise have been.
Report Eeternaloptimist May 9, 2013 5:59 PM BST
So to recap. You boys have yet to provide any evidence that Krugman predicted the crash despite making the assertion that he had. He identified something in 2005 that he helped to create through his pronouncements in late 2002:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

And having advocated that policy he then criticised Greenspan for following it and said in 2005 that he should have addressed it two years earlier which was...............drum roll.............the time that he, Krugman, was advocating it.

He then goes on to say that in the worst case scenario this housing bubble if it goes wrong may lead to a possible recession. And that is it.

Well blow me down. You boys are easily pleased as seemingly are plenty of others. Lots of talk about Krugman predicting this and that but little evidence.

Why is that chaps?

Oh and one other thing. What is his policy prescription going forward:

Maybe another housing bubble.

I am seriously not making this shiit up. That is what your hero said. LaughLaughLaughLaughLaughLaughLaughLaughLaughLaughLaugh
Report mickstick May 9, 2013 6:38 PM BST
Give it up EO, your embarrassing yourself. And not for the first time.

Criteria used in the selection for the Revere Award included the following:

that the prediction was not whimsical or lucky, but was driven by theories, methods, and tools that are clearly within the domain of ‘economic thought’;
that the forecast could be replicated given similar data;
that the forecast was made public, and
that the methods and tools used will spur the development of economics such that the subject gains rather than loses traction as a result of the crisis.




The shortlist

Shortlist for the Revere Award for Economics

Dean Baker, formerly a professor at Bucknell University, is co-director of the Center for Economic and Policy Research in Washington. He is the author of many research papers, an economics columnist for the Guardian, a weekly online commentary on economic reporting, and several books, most recently False Profits: Recovering from the Bubble Economy.

Wynne Godley is professor emeritus of applied economics at Cambridge University and more recently a Distinguished Scholar at the Levy Economics Institute of Bard College, New York. He is noted for his research that uses accounting macroeconomic models to reveal structural imbalances.

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri (Kansas City), president of the Institute for the Study of Long-term Economic Trends and a Wall Street financial analyst. He has long been a critic of growth induced by asset-price inflation.

Steve Keen is a professor of economics and finance at the University of Western Sydney and a specialist in financial instability. His analytical framework draws on Minsky, Fisher and Keynes. Beginning with the 2001 publication of his book Debunking Economics, he gained international prominence through his mathematically oriented attack on the neoclassical mainstream, his explanation of why the latter is such a poor guide to the way the economy actually works and his hypothesis of financial instability.

Paul Krugman is Professor of Economics at Princeton Univreisty, winner in 2008 of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel and op-ed columnist for The New York Times.

Jakob Brøchner Madsen was a professor of economics at the University of Copenhagen until 2006, when he moved to Monash University in Denmark.

Ann Pettifor is the author of several books on debt and international finance.  Beginning in 2000, she headed the New Economics Foundation’s research unit on global macro-economics.  Currently she is executive director of Advocacy International, which undertakes research and advises governments and organisations on matters relating to international finance and sustainable development.

Kurt Richebächer (1918-2007) was chief economist for Dresdner Bank from 1964 to 1977, when he left it for private consultancy. He wrote one of the longest-standing investment newsletters, “The Richebächer Letter,” in which he warned against the bubble in technology stocks in the late ’90s. Paul Volker, former Chairman of the US Federal Reserve, once remarked that the challenge for today’s central bankers “is to prove Kurt Richebächer wrong.” He died on August 24, 2007, two weeks before the collapse began.

Nouriel Roubini is Professor of Economics and International Business at the Stern School of Business, New York University, Research Associate at the NBER and Research Fellow with the CEPR. He is a former advisor to the U.S. Treasury Department and former member of the  White House Council of Economic Advisers. He runs the Roubini Global Economics Monitor and the blog Roubini Global Economics.

Robert Shiller is a Yale economics professor.  Like Richebächer he warned against the dotcom bubble.

George Soros, legendary financier and founder of a global network of charitable foundations, has authored numerous books on finance and economics, including The Crisis of Global Capitalism (1998). Like Richebächer and Shiller, he warned against the dotcom bubble. His analysis identifies fundamental instabilities in capitalism, most notably — and reminiscent of Keynes — the reflexivity of markets.

Joseph Stiglitz holds chairs at Columbia University and Manchester University and in 2001 received the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.  He is know for his critical views of globalization, free-mrket fundamentalism, the IMF and the World Bank.


Funny ,I don't see your name among the nominees.
Report Eeternaloptimist May 9, 2013 6:43 PM BST
I don't see the evidence for your assertion either. Any chance of you popping it up? We know what Krugman has said. Is there anything further you have to add or is that it?
Report mickstick May 9, 2013 6:46 PM BST
You must play a mean pinball.
Report Eeternaloptimist May 9, 2013 6:59 PM BST
Look buddy. You either have the evidence or you don't. If you don't that's fine but I've been training hard today and I'm too tired to dance. Grin
Report clive82 May 9, 2013 7:28 PM BST
So I don't actually disagree with the principle of the state topping up the wages of the low paid workers and make certain jobs more viable than they would otherwise have been.

The viability or otherwise of jobs, and the wider economy is not aided by vote seeking individuals deciding how much of taxpayers money is appropriate for them to use to artificially inflate them.
Report Mighty Whites 2008 May 9, 2013 8:21 PM BST
Java     09 May 13 14:43 
Leaving aside blame, why any sane politician thinks it is a good idea to tax someone and then give it back as opposed to just not taxing them in the first place is beyond me.


It is ludicrous that the government takes money off someone in the form and then gives it them back in the form of a credit.

Apart from the exercise being totally pointless you have the added cost of administering the exercise not to mention money lost in fraud and anxiety caused when mistakes are made.
Report Eeternaloptimist May 10, 2013 2:27 PM BST
Mick seems to be struggling to find that evidence. Has he like others before him been taken in by the great charlatan otherwise known as the okey cokey economist? To recap he advocated a housing boom then bawled his eyes out when he got one. So having been chastened by that experience he would never advocate doing it again would he? Would he? This is what he said recently:

The great thing about fiscal policy is that it has a direct impact and doesn’t require you to bind the hands of future policymakers. And there’s the problem that the main channel through which interest rates affect the economy is housing. Are we ready for a housing boom?  Maybe. It looks better than it did a few years ago,
Report mickstick May 10, 2013 2:57 PM BST
I have posted the evidence, you are just reluctant to accept it. I am not repeating myself to you time and again and again, I have just returned from training to be the laziest retiree in the pub.
Report Eeternaloptimist May 10, 2013 3:13 PM BST
I'm sorry mick you seem a decent fella so I'm not going to start calling you a  liar but the evidence is quite clear. This is what you said:

LOOK BEHIND YOU. OH YES HE DID. By predicting a recession and a banking crisis caused by the bursting of the housing bubble he did just that. TWO FULL years before it did eventually happen, how much warning did they need.


This is what Krugman actually said as cited by you:

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.


He didn't predict a recession. He said that it was possible if eliminating the imbalances didn't go smoothly. Unless I've missed it he never even mentioned a banking crisis.

Which is why I asked for further clarification because the evidence to support your contention and indeed Krugman's bombast just isn't there. I've given the evidence which is there and which speaks for itself.
Report mickstick May 10, 2013 3:27 PM BST
Before I go for my afternoon nap, PAUL KRUGMAN WAS NOMINATED FOR A REVERE AWARD by the readers of an important economy journal. The award was for those who successfully predicted the crash of 2008

Criteria used in the selection for the Revere Award included the following:

that the prediction was not whimsical or lucky, but was driven by theories, methods, and tools that are clearly within the domain of ‘economic thought’;
that the forecast could be replicated given similar data;
that the forecast was made public, and
that the methods and tools used will spur the development of economics such that the subject gains rather than loses traction as a result of the crisis.


No mas, I'm getting giddy.
Report mickstick May 10, 2013 3:51 PM BST
2005

Dean Baker and Paul Krugman in March predicted in a paper written with J. Bradford DeLong that asset prices in the US were bound to fall in the medium term.
Paul Krugman on 27 May wrote in his NYT column:

If housing prices actually started falling, we’d be looking at [an economy pushed] right back into recession. That’s why it’s so ominous to see signs that America’s housing market … is approaching the final, feverish stages of a speculative bubble.


2006

Paul Krugman on 4 December in the NYT wrote

Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession.
Report Eeternaloptimist May 10, 2013 7:57 PM BST
For goodness sake mick. Look at what you have claimed on his behalf and what he actually said. There is a huge gulf. Having told them to create one he then told the world that housing was in a bubble and that if it went pair shaped it could end up in a recession. Somewhat similar to what happened in Britain in the late 80's. I get it really I do. At least tell me you are winding me up here because he did not predict the economic crash which ensued.
Report Eeternaloptimist May 10, 2013 7:57 PM BST
pear. Laugh
Report mickstick May 10, 2013 8:06 PM BST
PLEASE READ FFS

PAUL KRUGMAN WAS NOMINATED FOR A REVERE AWARD by the readers of an important economy journal. The award was for those who successfully predicted the crash of 2008

Criteria used in the selection for the Revere Award included the following:

that the prediction was not whimsical or lucky, but was driven by theories, methods, and tools that are clearly within the domain of ‘economic thought’;
that the forecast could be replicated given similar data;
that the forecast was made public, and
that the methods and tools used will spur the development of economics such that the subject gains rather than loses traction as a result of the crisis.

Please tell me you are on a wind up
Report errytay May 10, 2013 8:15 PM BST
Mick dont drive yourself mad. The point has been proved.
Report Eeternaloptimist May 10, 2013 8:16 PM BST
I get it. Really I do. He was nominated for an award for predicting the crash. Now you and I know that Krugman doesn't hide his light under a bushel and nor do his advocates. So we get to the nub of our discussion. There must be some written evidence of this actual prediction somewhere. Anywhere. As far as this humble servant can see the gap between what is being claimed and the actual evidence is a chasm. I've looked and I can't find it. But it must be there. He must have committed his prediction to print. So please. Pretty please with a great big cherry on top. Humour me. Put the actual evidence on the forum because you seem to have already taken your best shot and it is so far wide of the mark it is embarrassing.
Report Eeternaloptimist May 10, 2013 8:17 PM BST
Sometimes I feel like I have walked into an alternate reality where black is white and up is down.
Report moisok May 10, 2013 8:18 PM BST
eo   give in now - watt tyler's revolutionary council will consider your case FAIRLY
Report moisok May 10, 2013 8:19 PM BST
come out from behind your castle walls and surrender with flags flying
you will be given a fair trial
Report moisok May 10, 2013 8:19 PM BST
BEFORE THEY HANG YOU
Report Eeternaloptimist May 10, 2013 8:24 PM BST
I will totally give up and humbly prostrate myself if someone, anyone, can put up evidence that Krugman predicted the crash instead of what he actually predicted which was a possible recession if things went badly from a housing bubble he had advocated. LaughLaughLaughLaughLaughLaughLaugh
Report Eeternaloptimist May 10, 2013 8:26 PM BST
Has everybody forgotten what actually did happen?
Report moisok May 10, 2013 8:28 PM BST
does it actually matter in the crazy horse saloon of global capital!!???

I prefer several glasses of bolly or even some nice real ale
Report Eeternaloptimist May 10, 2013 8:29 PM BST
Of course it doesn't matter but then again nothing else matters. LaughLaughLaughLaughLaughLaughLaughLaughLaughLaugh
Report moisok May 10, 2013 8:31 PM BST
eo  you disappoint me - of course things matter =-  the quality of the champers, beer and women is paramount!!!
Report Eeternaloptimist May 10, 2013 8:42 PM BST
Are you sure you have the order right there moisy?
Report mickstick May 10, 2013 8:49 PM BST
You agree that the bursting of the housing bubble equates to the banking crisis?
Report moisok May 10, 2013 8:54 PM BST
EO  at my age  although I appreciate the fairer sex, I do need the ale or champers FIRST to help me along !!!

at least my young girlfriend says I do!!!Sad

ps watching my alto ego    - woody allen - in MANHATTAN  - and do not for goodness sake mention the 17 year old or we will all be arrested  - do you realise he also has Dianne Keaton and Meryl Steep in it as well!!!!!   how does he do it!!!???  FANTASTIC FILM  and of course gershwin  - do I need to say more

stay good
Report Eeternaloptimist May 10, 2013 9:24 PM BST
mick

The housing market has risen and crashed previously without the fallout we witnessed. What Krugman did was identify a tiny part of a much wider tapestry and it was the most obvious part. Clearly the mountain isn't coming to Mohammed here and so have a read of this from economicpredictions.org. It's long but informative:

Who are the experts who predicted the financial crisis and the ensuing economic crisis? What were their warnings?

To find the answers, we started by Googling the phrase: Who predicted the financial crisis. We found many news stories and articles. Most of the articles were marketing articles rather than investigative journalism. The few academic research papers that we found were written by those who missed the crisis. The research papers were either incomplete or contaminated with biases justifying why no one predicted the crisis.

As researchers we were skeptical too. But unlike our professors, who we cannot name here for obvious reasons, we did not have ego issues to stop us from keeping an open mind. We also were wary of the many marketing statements associated with some of the economists such as Nostradamus, Dr. Doom, Economic Gurus, Oracles or Prophets. We understand the need of PR professionals to promote their clients or writers to attract the attention of the readers. But rather than believing or disbelieving these articles, we focused on the predictive statements from the experts and their dates.

Our initial research identified three credible early warnings and we suspect that we will find more by the time we complete our research project. The most well documented predictions come from three experts. They are, in order of prediction date; Dean Baker, Med Jones and Peter Schiff

    Housing Bubble Sitters - A warning by Dean Baker (August 25, 2005)

    US Economic Risks 2007-2017  - A warning by Med Jones (June 2, 2006)
    International Monetary Fund Seminar - A warning by Nouriel Roubini (Sept 13, 2007) - After initially removing Dr Nouriel Roubini from the list due to lack of documented evidence. We received an email on April 19,2011 with a copy of the IMF transcript. (please see Correction Note)
    Fox News Debate  - A warning by Peter Schiff (Dec 16, 2006)
    Others? If you have more information about other experts who predicted the financial crisis and gave warning before August of 2007 please email us with the information to add to the list. (see Qualification Criteria below)

Who are these experts?

Dean Baker is an economist who warned about the crisis earlier than all the other experts, but was mostly ignored because he went silent on the topic in 2006 & 2007.

Med Jones, a strategy expert who is lesser known than the remaining expert but produced the most accurate predictions among them.

Nouriel Roubini is an economist and a media darling. He is the most popular among those who predicted the crisis, although recent journalistic investigation reports challenge the date and the content of his predictions. We are still reviewing evidence to determine whether to include him or remove him from the list. (See notes below the next table)

Peter Schiff is an investment manager, also widely covered by the media and is most popular with the Tea Party. He was the economic advisor of Ron Paul - A Republican Presidential Candidate - and a Tea Party favorite.

The most bearish of the four is Peter Schiff. The least bearish is Med Jones.

The following table compares the first documented public warnings (and predictions) by each expert, their dates and sources:
Wall Street / Economic Predictions
   
It was not enough for us to take their prediction statements in isolation and judge their accuracy. We had to read a several articles (see table below comparing economic predictions) to understand the underlying thesis of each expert and see if they were consistent in their core arguments.

Note (1) The link to Dean Baker's document shows a date of 2002, but the file was last modified in July 21, 2005 and the first independent reference to the paper that we found is on August 2005 on the Bankrate website. Nevertheless, the dates of his report and the public warning on Bank rate are before our chosen cut-off date of September 18, 2007 - Which is the date of the first public warning about the housing bubble and its impact on the economy by Alan Greenspan, the former Fed Chairman (Source: PBS TV Channel).
Before that date, few news reports came out on the subprime trouble at some investment funds. The mainstream economists and media were not able to connect the dots to see the scale of the subprime mortgages and its potential impact on the financial markets and the economy. To Dean Baker's credit, he did warn the public about the housing bubble and its impact on the economy before all the other experts. The strange thing about the warning is that Mr. Baker went silent on the issue after 2005. It appears that after his prediction did not come true in earlier years (from 2002 to 2005), he dropped his conclusions and kept quiet about the issue until May 2008 when he took a credit for predicting the housing bubble. Although he appears to be the first to predict the crisis, all the credit in the media went to Nouriel Roubini and Peter Schiff.

Correction Note Dr. Nouriel Roubini (Dr. Doom) claims that he warned the public about the crisis in 2006 at an IMF speech. We found no documented evidence of the transcript of the said speech. To make things worse, Dr. Roubini was challenged by another economist Dr. Anirvan Banerji who participated with Roubini in a panel discussion. He says that a transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted. Banerji says that “The justification for his bearish call has evolved over the years” Banerji went on, "ticking off the different reasons that Roubini has used to justify his predictions of recessions and crises."  (Source: New York Times & Eric Tyson)

Research Conclusion (April 4, 2011):

Initial research found the only documented evidence shows that Nouriel Roubini warned about the crisis on September 13, 2007 at an IMF seminar. According to an International Monetary Fund (IMF) position paper, the crisis started in August 2007. By August 2007 the sub-prime crisis became known to several insiders and economists. Alan Greenspan, the former Fed Chairman warned about the subprime crisis in September of 2007 in a PBS interview, so no one can take credit for predicting the crisis after August 2007. If we do not receive the transcript of the IMF speech of 2006, then we cannot in good conscience support the claims that Dr. Roubini predicted the financial crisis. If you disagree with the research conclusions, please send us the missing transcript of IMF speech of 2006 at

research {at} economicpredictions.org

Research Conclusion (April 19, 2011)

After releasing a press release about the research results of April 4, 2011 and contacting several journalists for fact checking, we received an email from ECRI with a copy of the IMF transcript. We studies the transcript in details. We verified that Dr Roubini in fact did warn about the housing bubble and its economic impact in the IMF transcript of September 7, 2006. (We are waiting for permission to republish the full IMF transcript. However, we published the relevant statements from the transcript and various predictions above. (please read the above table)

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Where those experts lucky in their predictions?

Based on their statements (see below economic predictions summary), their logic in arriving at their conclusions and the way they risked their reputation in going against mainstream economists and media, we believe it would be unfair to discredit them as lucky.

What is interesting is that although they warned about the same crisis, the differences in their conclusions are not in the causes, but in the timing and the severity of how the crisis unfolded and will continue to unfold.

Peter Schiff  is more bearish and dramatic in their prediction warning about "doom" and "gloom" "cataclysmic", "economic collapse" and "catastrophic" events. On the other hand, Dean Baker and Med Jones were less bearish in their assessment of the impact, using more measured words like "crisis", "sharp correction" and "deep recessions"

Our conclusion is that the crisis was predicted by at least three experts. This confirms the earlier conclusions of the Financial Crisis Inquiry Commission (FCIC.GOV) that the crisis was avoidable. Although statistically extraordinary in their predictions of the economic crisis, these experts remain untapped by the government and academia. While their record of predicting the timing of economic events is not perfect, we would have liked to see more research done by scientific, educational and media communities to capture their logic and thinking that led them to foresee the crisis with such certainty.

Research Note: The fact that these experts predicted the crisis does not mean that they have the correct formula for predicting other economic events. Non of them have a track record of flawless predictions. However to their credit they came closer than most economists did. As you will see later in the research report, there is no single formula for financial and economic forecasting. While some formulas work in certain environment, they do not work in others. The scientists, investors and government policy makers could create a set of predictive tools that implement the learned lessons and prevent future economic crises and financial losses. The other lesson we learned is that we should not ignore expert opinions based on lack of popularity and we should be aware for our decision biases.

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Predictions Summary and Thesis

The next section summarizes their predictions and the thesis of each economist behind their conclusions

Dean Baker Predictions and Thesis (July 21, 2005)
In a CEPR research paper titled: The Run-Up in Home Prices: Is it Real or Is it Another Bubble?, Dean Baker wrote: "A sharp drop in home prices will send this ratio far below its previous low point. Since there are considerable differences in housing markets across the country, if housing prices fall 10 percent nationally, then many regions will see price declines of 20-30 percent...In the late eighties Japan experienced a simultaneous bubble in its stock market and its real estate market. The collapse of these bubbles has derailed its economy for more than a decade. A similar collapse in the United States, coupled with a poor policy response, could have similar consequences here." - (See more detailed information at Dean Baker Predictions)

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Med Jones Predictions and Thesis (June 2, 2006)

In an IIM research paper titled US Economic Risks and Strategies 2007-2017, Med Jones wrote: "The economic real growth is much less than advertised. Since 2001, economic growth has been largely fueled by rapid increases in asset prices (housing bubble) and expanding consumer debt rather than development projects, which results in non-sustainable and unhealthy (debt-driven) growth...Many Americans refinanced their homes during the real-estate boom to pay for living expenses. With the expected housing bubble bust (declining housing values), Americans could lose a significant part of their savings". He also warned specifically about the crisis caused by the subprime mortgages bankruptcies and loss of confidence in the US economy, followed by global socioeconomic challenges driven by sovereign debt, Social Security, Medicare, and Medicaid crisis, individual states bankruptcies crisis, EU debt crisis, global inflation and potential US currency crises between 2007 and 2017 (See more detailed information at Med Jones Predictions)

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Peter Schiff Predictions and Thesis (December 16, 2006)

In various TV interviews, Peter Schiff said, the US economy is not strong. The housing market will crash and we will have high unemployment. He foresees US defaulting on its debt and the collapse of the US dollar along with hyperinflation (becoming like Zimbabwe) (See more detailed information at Peter Schiff Predictions )

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Comparing Economic Predictions

Who Predicted What and When?
What do the experts agree on and where do they disagree?

The following is a comparative prediction table showing prediction statements, dates, and references

Wall Street / Economic Predictions
   
If you consider only the independently documented evidence, the earliest prediction among the experts came from Dean Baker and the most accurate predictions came from Med Jones. Nouriel Roubini's predictions lagged behind the other experts and Peter Schiff's predictions were the most bearish. If you have information to help us improve our research, please email us and include a substantiating evidence.

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

How accurate are their predictions? Can they be relied on for investment decisions

Take the statement "Great minds think alike". We could not help but notice how similar is the economic analysis of the four experts and yet wonder how they arrived at different conclusions in the details of their predictions? There is no easy way to summarize their differences without reading their material in total. We'll let the readers judge for themselves

How did we arrive at those four experts? And what is the qualification criteria for inclusion in the list of economists who predicted the financial crisis?

Initially, the research was aimed at evaluating the accuracy and the applicability of the predictions of the world's top economists, Wall Street analysts and investment advisors. In order to get an accurate collective picture, we needed to short list the economic experts. In the beginning, we were inclined to go with award-winning economists or the chief economists who work for top investment banks or think tanks, or analysts who write for top financial media. As a result we ended up with a long list of experts published at the home page of this website. Our intellectual honesty demanded that we do not make our selection based on popularity, but rather on the accuracy of the experts' predictions.

While doing the research we came across this shocking data: "On a global basis, $50 trillion dollars in global wealth has been erased over the last 18 months. This includes $7 trillion dollars in US stock market wealth which has vanished, and $6 trillion dollars in housing wealth that has been destroyed (Source: CBS News March 13, 2009).

The crisis had another outcome that might be even more damaging in the long-term. The fall-out has cost the government some $10 trillion in bail-out money, resulting in increased budget deficits, major cutbacks in public services, the loss of the life savings of million of families, and the loss of millions of homes and jobs. Today there is an increased risk of declining currencies in US and Europe, increased inflationary pressures and a significant erosion of trust in the competency and morality our banks and governments.

It became obvious for us that the litmus test for an economist was the latest US financial crisis at the epicenter of the global economic crisis. If an economist did not warn about the housing bubble and its serious impact on the financial markets and the economy, then we could not in good conscience include him in the list, regardless of his previously earned prestigious awards and media coverage. Missing a crisis of this magnitude questions the credibility, the abilities and policy recommendations of the economist or investment advisor.

We had to ask three questions to qualify the economists or experts

Did the economist predict the latest financial crisis or just claim that he did? Was his predictive statement documented in the news media or by reputable independent source, like a public conference?
   
Was the economist specific about the crisis, its impact and its root causes? Or was he just bearish in his general outlook and simply got lucky? Any generic warning about the correction of the housing prices is not without a reference to the subprime crisis or the severe impact on the economy.
   
When did the economist actually predict the crisis? Our research reveals that the global financial crisis began with a series events in August 2007 – when BNP Paribas froze access to two of funds, which were based on sub-prime assets.

It is safe to say that several insiders became aware of the subprime issue at some of the individual banks that were involved in subprime mortgages. Even fewer, if any, were able to connect the dots to see the subprime problem as a threat to the financial system and the economy. One of our readers suggested that the official month of U.S. subprime mortgage collapse should be in August 2007 instead of September 2007. The supporting evidence is found in a position paper issued by the International Monetary Fund (IMF).  We considered that correction request. The new cut off date is August 2007.
   
In September of 2007 former Federal Reserve Chairman Alan Greenspan warned about the housing bubble in the public media - (Source PBS) reversing his long-held position that there was no housing bubble. After that Fed Chairman Ben Bernanke and Treasury Secretary Herny Paulson expressed alarm about the dangers posed by the bursting housing bubble to the US economy - (Source AFP). Over the next 12 months, events accelerated until the crisis peaked in September of 2008 with the collapse of Lehman Brothers that sent shockwaves around the world. We found a statement by Larry Summers, former Chief Economic Advisor for the US government on CBS News, stating: "On a global basis, $50 trillion dollars in global wealth has been erased over the last 18 months. (Source: CBS News) March 13, 2009.  (When we correlated that statement from the US official top economic advisor, we found that it validates our chosen date for the beginning of the crisis). Therefore we decided that the most logical cut-off date is the month of August 2007. Any statement offering warning about the financial crisis after that date cannot be given much credit.

Correction Note:

The results from the first set of questions eliminated most of the world's economists, including Nobel Prize winners, celebrated economists, financial wizards, economic policy makers, and investment advisors. This does not take away from their intelligence, it simply shows they were wrong and that their decision models and policies must be corrected.

The results from the second set of questions eliminated several authors and reputed economists who warned the public about an economic crisis as early as the '90's, but who were not specific about the root causes or stated other reasons for the recession. Also, predicting a single event such as a housing sector correction doesn't mean the expert foresaw the multidimensional complex impact that led to the crisis. Unless the expert warned about an economic crisis as a result of the financial crisis, caused by the housing bubble and high levels of debt, he was not included in the list.

The results from the third question eliminated many experts and media commentators including MSNBC, MS Money, Fortune, CNBC, Wall Street Journal, The Economist, and Bloomberg - some of whom were shamelessly promoting themselves among the experts who did predict the crisis. In an effort to attract more traffic and readers, their editors appear to have lowered their journalistic and editorial standards. Some commentators warned about some aspects of the banking sector but they did not warn about the economic crisis and were not specific enough about the impact or the root causes. Some even wrote articles assuring the readers that the US financial sector and the economy were strong.

Among the names who claimed that they predicted the crisis but did not qualify into the list are Jon Markman and Jim Jubak. Although they recognized the risks earlier than many of their colleagues, they cannot be credited with predicting the crisis.

We received a suggestion to add Gillian Tett, a Financial Times journalist as one of the expert who predict the crisis. We found media articles in 2008 claiming that she predicted the crisis in 2006, but we did not find any documented evidence supporting that claim. We ask our readers if they have evidence to email us at research {at} economicpredictions.org

Who Predicted the Financial Crisis - Who Predicted the Economic Crisis - Who Predicted the Housing Bubble - Who Predicted the Subprime Crisis - Who Predicted the Debt Crisis - Who Predicted the Currency Crisis

Research Comment on Financial Journalism:
The unintended consequence of this research is the questioning of the quality the of financial journalism by Wall Street media and journalists who publicized that Dr Nouriel Roubini predicted the financial crisis without sufficient supporting evidence.

Several TV anchors and financial journalists introduced Dr. Roubini as the expert who predicted the financial crisis. Among these media outlets are Bloomberg, Time Magazine, Fortune Magazine, Wall Street Journal, CNBC, The Guardian (UK), Telegraph (UK), Financial Times, and the Economist. After one of the major media outlets published a story about how Roubini supposedly predicted the crisis, most of the reporters appear to function as copycats more than investigative journalists. Few journalists and authors did not accept the media hype without supporting facts, among hem are Eric Tyson, a well-known financial author and Charlie Gasparino a renowned financial journalist.

Researchers are naturally skeptical but should not be biased. Many economists and investors who missed the crisis are quick to dismiss Dr Nouriel Roubini as lucky or claim that no one could have predicted the crisis. The motivation is self-serving. It is difficult to accept that there are few people out there who could be that much more smarter than the rest of the world who failed to foresee the crisis. The research goal is not to credit or discredit Dr Roubini or others. The goal is to get the facts right and learn from the crisis. The research project casts serious doubts about Roubini's predictions or forecasts and their value in making investment decisions.  (See wrong predictions at Nouriel Roubini Predictions)

On the other hand, the research found several experts who actually predicted the crisis and warned about the crisis publicly yet received far less media coverage. For examples, Dean Baker warned about the crisis earlier than most and Med Jones had the most accurate predictions. Both were barely covered by the media. Other experts who warned about the housing bubble, subprime mortgages and their impact on the economy are Peter Schiff, Brooksley Born, Robert Gnaizda, and Bill Ackman. (we will publish more information about them soon)

Mainstream media should also take responsibility for promoting the illusions of a healthy housing sector and for not asking the right questions. Many media outlets favor a promotional business model at the expense of investigative journalism. The research found a prevalent bias in allocating airwaves and print space to brand name experts. Most journalists and editors seem to ignore voices that are not well-known or those who have a story that do not fit their narrative or preconception. All we had to do is Google simple phrases like "US Economic Risks" to find a wealth of information that would raise so many critical questions. If equal media exposure was given to the voices that warned us about the housing bubble, the damage could have been mitigated.
Report mickstick May 10, 2013 10:12 PM BST
The housing bubble of 2000s was inexorably tied to the subprime toxic mortgages and therefore its ties to large financial houses,unlike any previous housing bubble. So the economists who foresaw the housing bubble and its end, effectively PREDICTED the worldwide financial crisis.

The credit crisis resulting from the bursting of the housing bubble is — according to "general consensus" — "the primary cause" of the 2007–2009 recession in the United States. 

Housing Gets Ugly
By PAUL KRUGMAN
Published: August 25, 2006
Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.
And with prices falling in many areas, the speculative demand for houses has gone into reverse, as people try to get out with a profit while they still can. There's now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.

Moreover, it could be both a deep and a prolonged bust.
As far as I know, Nouriel Roubini of Roubini Global Economics is the only well-known economist flatly predicting a housing-led recession in the coming year. Most forecasters consider his call alarmist, and many Federal Reserve officials remain optimistic. Last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, dismissed ''Eeyores in the analytical community'' who worry about a possible recession.

Call me Eeyore. While I don't share Mr. Roubini's certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it's hard to see how we can avoid a serious slowdown.

There are a lot more articles in which Krugmans allies a housing bubble bursting and the inevitable recession.
But If I posted all of them you are never going to agree that the man predicted the crisis and its cause.
Report mickstick May 10, 2013 10:23 PM BST
This article is from 12 months before the previous one posted

That Hissing Sound

By PAUL KRUGMAN
Published: August 8, 2005
This is the way the bubble ends: not with a pop, but with a hiss.
Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, 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. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.

In the nation as a whole, housing prices rose about 50 percent between the first quarter of 2000 and the first quarter of 2005. But that average blends results from Flatland metropolitan areas like Houston and Atlanta, where prices rose 26 and 29 percent respectively, with results from Zoned Zone areas like New York, Miami and San Diego, where prices rose 77, 96 and 118 percent.

Nobody would pay San Diego prices without believing that prices will continue to rise. Rents rose much more slowly than prices: the Bureau of Labor Statistics index of "owners' equivalent rent" rose only 27 percent from late 1999 to late 2004. Business Week reports that by 2004 the cost of renting a house in San Diego was only 40 percent of the cost of owning a similar house - even taking into account low interest rates on mortgages. So it makes sense to buy in San Diego only if you believe that prices will keep rising rapidly, generating big capital gains. That's pretty much the definition of a bubble.

Bubbles end when people stop believing that big capital gains are a sure thing. That's what happened in San Diego at the end of its last housing bubble: after a rapid rise, house prices peaked in 1990. Soon there was a glut of houses on the market, and prices began falling. By 1996, they had declined about 25 percent after adjusting for inflation.

And that's what's happening in San Diego right now, after a rise in house prices that dwarfs the boom of the 1980's. The number of single-family houses and condos on the market has doubled over the past year. "Homes that a year or two ago sold virtually overnight - in many cases triggering bidding wars - are on the market for weeks," reports The Los Angeles Times. The same thing is happening in other formerly hot markets.

Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?

Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone - not just those who own Zoned Zone real estate - should be worried.
Report moisok May 10, 2013 10:33 PM BST
how on earth do you know!!??
Report mickstick May 10, 2013 10:33 PM BST
Increased foreclosure rates in 2006–2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble "the most significant risk to our economy."

Precisely what Krugman said in both the previously posted articles
Report moisok May 10, 2013 10:36 PM BST
you believe any of this selfserving perpetuating garbage about capitalism!!??
Report mickstick May 10, 2013 10:46 PM BST
So there we have it. In 2006, Krugmans voices his concern that a major bust in the housing market is imminent.

There's now a rapidly growing glut of unsold houses. This is a recipe for a major bust, not a soft landing.

Moreover, it could be both a deep and a prolonged bust.


Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation's mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession
Report Eeternaloptimist May 10, 2013 11:56 PM BST
Everything else is more rehashing of the acknowledged fact that he called for a housing bubble and then belatedly disassociated himself from the call he made. I get that. However, the meat of what you are saying above is this:

The housing bubble of 2000s was inexorably tied to the subprime toxic mortgages and therefore its ties to large financial houses,unlike any previous housing bubble. So the economists who foresaw the housing bubble and its end, effectively PREDICTED the worldwide financial crisis.

That is now the crux of our debate here with you having moved on from your initial assertions. I agree that many believe now that the housing bubble bursting (wrongly in my view) caused the financial crisis. However, leaving that issue aside for another debate the crucial issue is indeed whether it in any way leads to a conclusion that this means an effective prediction of a worldwide crisis.

Firstly, as briefly noted above it has to be noted you rowing furiously backwards. Initially you were claiming that he predicted the crisis. You were staunch in that view. Now you find you were duped you are falling back on an effective prediction. I pause to acknowledge this movement. Let's see if we can take you further into the light.

Of course you say it does present us with an effective prediction but let us examine what Krugman actually said because he totally failed to grasp the magnitude of what was developing before his very eyes. He said that if the bubble burst it may result in a possible recession. Not a worldwide financial crisis but a possible recession.

So even if we are charitable to Krugman and give him credit for belatedly waking up to the damage which his prescribed policy (and indeed policies) cause(d) the point is that he singularly failed to spot the elephant in the room which was as you say inexorable.

In fact let us remind ourselves just how weak Krugman was on the issue:

As far as I know, Nouriel Roubini of Roubini Global Economics is the only well-known economist flatly predicting a housing-led recession in the coming year. Most forecasters consider his call alarmist, and many Federal Reserve officials remain optimistic. Last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, dismissed ''Eeyores in the analytical community'' who worry about a possible recession.

Call me Eeyore. While I don't share Mr. Roubini's certainty, I see his point: housing has been the main engine of U.S. economic growth over the past three years, and with that engine now going into reverse, it's hard to see how we can avoid a serious slowdown.


Let's call this thing for what it is. Krugman was so scared to pin his colours to the mast that he insisted on seeking to attempt to ride several ponies at once whilst crossing the river. That way whatever happened he wouldn't be wholly wrong and he could spin his way into conning those who left themselves open to his quackery. He didn't even share Roubini's certainty about a recession let alone seek to pull the curtain back to see what nastiness lay beyond.
Report boris-the-animal May 11, 2013 7:50 AM BST
EO

Krugman is an academic and it is the norm within that field never to be categoric with their views.

It is also in the habit of academics to show the merits of the other argument and show how flexible and pragmatic you are to other views.

Yes Krugman did say that the only way for Greenspan to kill off the 2001 recession was to create another real estate bubble but I am not sure you can say he did recommended that measure or whether it should not have been only a short term measure.

Whatever you may say no one whether an academic or otherwise has a record of being accurate with all their predictions so Krugman does have the merit to have warned us about the the housing collapse before most of his fellow economists even if he did not foresee the scale and magnitude of the banking crisis.

You seem to be so obstinate in your view about Krugman whom many of us in the left respect and agree with alot of his prescriptions.

Can you give us examples of non Keynesian economists(BTW Roubini, Baker and Keen are neo/postKeynesians ) who predicted the crisis the way you say and let us see what their records and recommendations are?
Report mickstick May 11, 2013 10:05 AM BST
Knowing you will never agree, but here goes.

The banking crisis in 2008 was due in the main due to the over selling of sub prime mortgages, which then failed, collapsing the banking industry not only in the USA but anywhere that was connected to the USA.

If there had been no bursting of the housing bubble, bankers would have carried on lending more and more, against what was in effect worthless collateral. Housing bubbles previously had not had this toxic problem. In 2007/8 No housing bubble burst, no crisis.

Was Krugman warning of the LONG TERM damage a housing collapse would cause to the country if such a housing crisis happened? The simple answer is YESDid he see THAT a housing collapse was imminent? The simple answer is YES Was he alone in doing so? NO.

No economist, analyst, forecaster gave times, dates, days to when this was going to happen. None of them. They are not Mystic Megs. But quite a lot were giving warnings that it was likely to happen. Krugman was one who was saying it was going to happen sooner than later. One of the most vociferous voices of the impending problems was our own Deputy of the Bank of England.
Report Eeternaloptimist May 11, 2013 11:19 AM BST
Okay gents. I'll start with boris' question first. To look for such predictions the best starting point are Austrian Scool economists. Taken from Mises:

Housing bubble

    Main article: Austrian predictions/Housing bubble

During and after the burst of the Dot-com bubble, numerous economists predicted the 2000s housing bubble that culminated in the Great Recession from 2008 onward.

In 2002, Robert Blumen summed up the effect of the activities of Fannie and Freddie on the housing market as shows the systemic risk and foresaw a coming bailout.[12] Sean Corrigan pointed to the blooming real estate business among all the bankruptcies, and noted that real estate bubbles tend to pop several years after stock market bubbles, and that mortgages may fare much worse compared to stocks... along with their owners.[13] Congressman Ron Paul criticized government involvement in housing, and said that like all artificially created bubbles, the boom in housing prices cannot last forever.[14]

In 2004, Mark Thornton wrote that higher interest rates (indicated by the Fed) "should trigger a reversal in the housing market and expose the fallacies of the new paradigm, including how the housing boom has helped cover up increases in price inflation. Unfortunately, this exposure will hurt homeowners and the larger problem could hit the American taxpayer, who could be forced to bailout the banks and government-sponsored mortgage guarantors who have encouraged irresponsible lending practices."[15] Later on, he spelled out the consequences for the construction industry, unemployment, foreclosures, bankruptcies, bailouts of banks and GSEs, and a long recession.[16]

Stefan Karlsson wrote that the next crisis will be more serious than the mild recession of 2001 one; as it is, in fact, that very same crisis, only postponed.[17]

In 2005, Doug French after observing the mania in Vegas, quipped "condos are the last segment of the housing market to catch fire in a boom and the first to crater in a bust.", and concluded that the bust must be close.[18] Gary North warned against the danger of ARMs (adjustable rate mortgages).[19]

Investor Peter Schiff acquired fame in a series of TV appearances (most in 2006 and 2007), where he opposed a multitude of financial experts and claimed that a bust was to come.[20] He was warning about the speculation, ARMs, houses that couldn't be sold, people walking away from them and coming bailouts for several years before in print.[21][22][23]
Report Eeternaloptimist May 11, 2013 11:28 AM BST
On Krugman:

When has he shown himself to be flexible to other views? He is quite intransigent to the point of abandoning professional courtesy to get involve in unseemly spats with other economists who happen to disagree with him.

Yes Krugman did say that the only way for Greenspan to kill off the 2001 recession was to create another real estate bubble but I am not sure you can say he did recommended that measure or whether it should not have been only a short term measure.

Of course he recommended it. Only his later protestations when it blew up in his face creates any doubt. In fact he didn't just recommend it he actually said it was needed. As for whether it should have been a short term measure perhaps you could point me to him stating that this should be the case or indeed where he advocates short term measures at all?
Report Eeternaloptimist May 11, 2013 11:47 AM BST
And now we get to the meat of the issue which cannot be put off any longer:

I didn't want to open up another front in this discussion but I think you have been conned. I've addressed this very issue on more than one occasion and it has gone down like a fart in a lift either through a lack of inclination or capacity.

In abridged form my contention is that the housing bubble was just the last in a list of disastrous policy initiatives which have their origin in the same place as nearly all other bubbles. The bottom line is this. The seeds for any bust are always sown in the policy reactions to the previous bust. In other words the history of boom and bust begins with the attempts to create a boom through loose fiscal policy which results in malinvestment and ultimately bubbles.

Like I've also said previously the origins of our current travails could arguably be traced back all the way to the creation of the FED, coming off the gold standard in the 30's, the final cut of the link to gold by Nixon in the early 70's which ultimately resulted in the spike in oil in the mid 70's and rampant inflation, the deregulations of the 80's and the message which was sent out about socialising losses resulting from the collapse of LTCM in 98.

The bottom line is that we are where we are because further bubble blowing followed previous bubble bursting. The late 90's saw a stock market bubble resulting in the madness of the dot com bubble and Krugman's policy suggestion was indeed one last bubble. Hair of the dog if you like. Consequently the ultimate bust was always going to be that much worse.

Of course like the ultimate one club golfer he is now out there hacking away at the greens calling for further loose economic policy reactions to a problem created by loose economic policy.
Report Eeternaloptimist May 11, 2013 11:56 AM BST
So lets put some meat on the bones of this wider exploration of the origins of our travails:

Frank Shostak highlighted the impact of the central bank’s policies. Today’s prevailing view is that central banks and other policy makers are knowledgeable enough to preempt severe economic slump. Notwithstanding the popular view, the US economy is severely out of balance. The reason for this is the prolonged loose monetary policies of the US central bank. The federal funds rate which stood at 17.6% in April 1980 fell to the current level of 5%. At one stage in 1992 the rate stood at 3%. The money stock M3 climbed from $1824 billion in January 1980 to $6152 billion at the end of June 1999. In a time span of less than a decade it grew by over 200%.

Another indicator of the magnitude of monetary pumping is the Federal debt held by the US central bank. It jumped to $465 billion in the first quarter of 1999 from $117 billion in the first quarter 1980, a 300% rise. Obviously the she
er dimension of the monetary pumping and the accompanied artificial lowering of interest rates has caused a massive misallocation of resources which ultimately will culminate in a severe economic slump.

Report Eeternaloptimist May 11, 2013 12:04 PM BST
Open your minds gents. Krugman is a quack.
Report boris-the-animal May 11, 2013 12:38 PM BST
EO

The Fed was created to create order when the free markets proved to be self destructive when given free reign.

While I will agree with you that Keynesians do not have all the answers to the problems we are facing, their solutions tend to be milder and more effective than those of your Austrian heroes and monetarists whose laissez-faire attitudes create misery for millions.

However after reading some of the Austrians you mentioned it increasingly leads me back to the point that the only way we can stop the incessant bubbles is if the banks were denied the power to create money implying that the only way we could save with no risk is through government bonds.

The Americans should have adopted the Chicago plan after the 1930s Depression so asset bubbles and inflation would not have been such a big issue.
Report mickstick May 11, 2013 12:44 PM BST
26DEC2009
Krugman DID Identify the Housing Bubble in 2005

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.”
Last apology: I also was suspicious in the previous post that Krugman didn’t point to any of his own articles (for proof that he had called the bubble), but instead linked to a 2005 article which in turn referred to Krugman’s 2001 articles–when those articles came 95% close to recommending that Greenspan create a housing bubble!! In retrospect, I think Krugman probably did that to show, “Hey, I know I was calling this back in 2005, and here are people attacking me for saying so–therefore I clearly was making loud noises about the bubble!” (Also, it’s possible there is a typo in that article critical of Krugman; I could never find his article that they were talking about.)
OK now that the apologies are out of the way, let’s go through and see the difference between Krugman’s identification of the bubble, versus a Peter Schiff or a Mark Thornton (from 2004). Here’s Krugman from May 2005:
Remember the stock market bubble? With everything that’s happened since 2000, it feels like ancient history. But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses.
I’ve never fully accepted that view. But looking at the housing market, I’m starting to reconsider.
In July 2001, Paul McCulley, an economist at Pimco, the giant bond fund, predicted that the Federal Reserve would simply replace one bubble with another. “There is room,” he wrote, “for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing.”
As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.
Now the question is what can replace the housing bubble.
Nobody thought the economy could rely forever on home buying and refinancing. But the hope was that by the time the housing boom petered out, it would no longer be needed.
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.

Even Alan Greenspan now admits that we have “characteristics of bubbles” in the housing market, but only “in certain areas.” And it’s true that the craziest scenes are concentrated in a few regions, like coastal Florida and California.

The important point to remember is that the bursting of the stock market bubble hurt lots of people – not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn’t been quickly replaced with a housing bubble.
So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it’s hard to imagine what that might be. After all, the Fed’s ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what’s left?
Mr. Roach believes that the Fed’s apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he’s wrong. But the Fed does seem to be running out of bubbles.
Not to beat a dead horse, but let’s go back to August 2002 closer to when the guy from Pimco first made the comment about Greenspan replacing the Nasdaq bubble with a housing bubble. Here’s what Krugman said at the time:
The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
So yes, Krugman did identify that there was a housing bubble in progress in 2005, but it was akin to a doctor thinking a cancer patient was reacting very severely to aggressive chemotherapy. The Fed-induced housing bubble wasn’t poison, as far as Krugman was concerned, just medicine that was having unfortunate negative consequences. His recommendation wasn’t for the government to stop tinkering and fueling new booms, but rather to search for something else to inflate.
Report Eeternaloptimist May 11, 2013 1:03 PM BST
mick

The point about the housing bubble isn't in issue because as I keep saying Krugman of all people should have known about it. That final paragraph is the most revealing:

So yes, Krugman did identify that there was a housing bubble in progress in 2005, but it was akin to a doctor thinking a cancer patient was reacting very severely to aggressive chemotherapy. The Fed-induced housing bubble wasn’t poison, as far as Krugman was concerned, just medicine that was having unfortunate negative consequences. His recommendation wasn’t for the government to stop tinkering and fueling new booms, but rather to search for something else to inflate.

Which is the point I keep making.
Report boris-the-animal May 11, 2013 1:08 PM BST
Mickstick

The thing is he recommended a medicine which he knew was going to have those negative effects.

I agree with EO that it is kind of disingenious of his to come 3-4 years later and criticise those same negative effects.

But at the same time Krugman's solution to the crisis would probably have worked in the short to medium term as we would have fueled another bubble or increased inflation both of which are acceptable compromises as far as Keynesian economics is concerned.
Report Eeternaloptimist May 11, 2013 1:13 PM BST
In fact to draw out that analogy a little more it was akin to the doctor telling a patient that he had cancer having previously sent him butt naked into a radiation filled room.
Report Eeternaloptimist May 11, 2013 1:15 PM BST
boris

Thank you for at least that admission. As I have repeatedly said the problem with bubbleonomics is that every bubble must be progressively bigger and eventually you run out of bubbles to inflate. Which is another way of advocating the Mises doctrine.
Report mickstick May 11, 2013 1:15 PM BST
EO

2007/8 the housing crisis is the banking crisis. They went hand in hand. Predict one you predict it all.

As for searching for something else to inflate, that has been the thing to do in the past to stop a crash. Increasing the the heat in one market to reduce the heat in another when the economy is growing too quickly. Classic economics.

I am moving on now. At my age the days are precious, and the walk to the local is taking longer. Take care
Report Eeternaloptimist May 11, 2013 1:16 PM BST
His recommendation wasn’t for the government to stop tinkering and fueling new booms, but rather to search for something else to inflate.

Which is what he is doing now.
Report Eeternaloptimist May 11, 2013 1:19 PM BST
2007/8 the housing crisis is the banking crisis. They went hand in hand. Predict one you predict it all.


Sorry mick that is just wrong. If an economist identifies a problem but not the effect of the problem then he may as well not have identified the problem in the first place. Krugman had little idea of what was happening. The only aspect he could identify was that last bubble which he had advocated blowing up.

How low you set the bar on behalf of Krugman.
Report Eeternaloptimist May 11, 2013 1:26 PM BST
Sorry didn't see your final comment mick. Enjoy your day.
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