Thanks Billmon – very good writing. So my prediction was wrong and like you and others I am scratching my head about this. We are in good company. Krugman in yesterdays column:

even before Friday’s grim report on jobs, I was puzzled by Mr. Greenspan’s eagerness to start raising interest rates. Now I don’t understand his policy at all.

The consequences will be huge if happens what Hutchinson writes in this weeks The Bear Liar column:

Going forward, every scrap of ammunition in the fiscal and monetary policy armory has been fired off at the economy, so the post-bubble economic undertow that prevents economic growth from occurring is now taking hold. Judging by the post 1929 experience and that in Japan in the 1990s, in both of which the prior bubble was smaller in terms of gross domestic product than that in the United States in 2000 (not to speak of the U.S. housing bubble of 2001-04) the deflationary undertow will be very severe, and will persist not merely for the reminder of this decade but into the next one. The $423 billion per annum U.S. budget deficit (shortly to rise sharply as renewed recession takes hold) and the $600 billion per annum U.S. trade deficit will make matters worse, producing a healthy dose of inflation to go with the recession, and lowering U.S. living standards even further than is otherwise inevitable.
It is likely that 10 years from now, when the long recession/stagflation period is at last beginning to lift, real U.S. living standards, on average, will be as much as 20 percent below where they are today, once the higher savings rates and higher tax levels of 2014 are taken into account. If Bush loses in November, it will be interesting to see who gets blamed for this — John Kerry, in whose presidency the worst of the downturn will hit, George W. Bush, who postponed the downturn by tax cuts but worsened it by public spending rises, or Bill Clinton, on whose watch the preceding bubble inflated (it must be remembered that liberals blamed the Great Depression on the entirely innocent boom-era president Calvin Coolidge for half a century after 1929.)
The real culprit, of course will be Alan Greenspan, who saw “irrational exuberance” in the market on December 4, 1996 but did nothing about it, then prolonged the period of financial madness from 2001 to 2004 by throwing money at the economy. But by 2014, he will be forgotten by the general public, as are his predecessors today; it will be no fun blaming him.

Posted by: b | Aug 11 2004 12:22 utc | 1