"NYT columnist Paul Krugman says the Fed is very optimistic re: a recovery soon because they expect a strong rebound in business investment.
Wonder what they are smoking? A modest rebound in business investment is a reasonable expectation, but a strong jump? And any increase in business investment will almost certainly be swamped by further substantial consumer retrenchment.
Still more evidence od how out of touch with reality the Fed and much of the financial establishment still is IMHO."
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George....
Until Greenspan's testimony before Congress last week I would have said that the Fed, far from being out of touch with the realities of the economy, was desperately doing everything it could to reverse the downward trend in the economy and the very real threat of deflation. The positive verbiage coming out of the Fed was just another example of trying to "jawbone" the public into thinking things were better than they really are in an effort to improve consumer psychology. All the evidence fit that premise, and I was confident that was the case.
In his Congressional testimony, though, Greenspan said that he questioned the need for fiscal stimulation of the economy at this time because it might be fine once the Iraqi situation was resolved. That was a very scary statement to me and indicated that indeed, he may be completely out of touch with reality. The reality, of course, is that we are headed "back" into a recession, this time led by a weakening consumer.
The only other possibility I can come up with is that Greenspan is setting up the Iraqi situation with its attendant rise in oil prices, as the "fall guy" to blame the coming recession on. He will end up claiming that everything was fine under his watch until the external event of war turned the economy down, and that was beyond his control. That would be utter nonsense and a complete lie, of course, but I am inclined to believe that is what will happen.
Just my opinion, though.
mlsoft
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