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.
Paul Krugman defended himself arguing that he wasn’t calling for a new housing bubble, but rather assessing up what the Fed was trying to do. STILL, given the disastrous effects of the post-NASDAQ housing bubble, the whole thing looks bad.
But we wonder, is Paul Krugman going to call for a brand new housing bubble?
Let’s be honest, there may be no other way to fix the serious structural problems keeping nationwide unemployment around 10%.
The continued problems in Nevada really drive it home. Job training can’t fix the problem, and neither can moving everyone to DC. If there’s one industry that we KNOW could employ the talents of the unemployed it’s… housing. Whether it’s homebuilding or filing basic paperwork, a housing boom would be fantastic for unemployment.
Paul Krugman has been calling on the Fed to do A LOT more lately, but the Fed can’t usher in a new era of green jobs or manufacturing or much else. But in theory, it could make mortgages free and by brute force create a new bubble. So when will Krugman just come out and say it: “Ben Bernanke needs to create a housing bubble to replace the housing bubble.”
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