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Thursday, March 28, 2024

Fed Apologist Ritholtz Interviews Fed Apologist McCulley

Courtesy of Mish.

Bloomberg columnist Barry Ritholtz interviewed Paul McCulley, former chief economist at PIMCO, and often mentioned FOMC candidate on the Fed’s performance.

The Podcast is over two hours long, so let’s just go with Ritholtz’s brief summary: McCulley Demands Apology on Behalf of the Fed.

McCulley noted those who claimed QE and ZIRP were going to cause inflation and the collapse of the dollar were totally wrong, and he demanded these critics of the Federal Reserve owe former Ben Bernanke an apology. Had the Fed Chief listened to them, we would have found ourselves in a modern day depression.

He is leery of those who believe the Government and Federal Reserve should have let the crisis run its course on its own, with zero interventions. He is especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.

The full podcast is available on iTunes, SoundCloud and on Bloomberg.

Rebuttal

In a blend of a monetarist and Keynesian thinking, McCulley supports Fed policies of QE and is “especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.”

For starters, I dispute the notion that without QE and intervention that “we would have found ourselves in a modern day depression” as Ritholtz maintains. Ritholtz’s claim is a poorly-formed hypothesis presented as fact.

Yes, it’s true that many in the Austrian camp predicted a dollar crash and high inflation. But I am in the Austrian camp camp and debt deflation has been my model, and still is my model.

As for an apology, what about an apology from the Fed for blowing serial bubble after bubble of increasing amplitude?

It’s inane to demand an apology from those who warned in advance, and correctly so, of the housing bubble and subsequent crash.

In a twist of irony, McCulley gloats over the alleged lack of inflation, but it’s pretty clear he has his blinders on as to what inflation is and ways it can be spotted. In the case of Fed policy, inflation did not manifest itself in the CPI, but rather in asset bubbles, again and again.

Challenge to Keynesians

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