by kjmclark » Tue 16 Jun 2009, 07:36:33
Starting the very next paragraph:
$this->bbcode_second_pass_quote('', 'J')udging 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.
...
But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
I.e., Krugman didn't expect them to be able to pull off a recovery. So, he was right on the mechanism, a housing bubble, that the Fed would use, but wrong in their ability to get it to work. They actually succeeded in inflating the mother of all housing bubbles and bought W six more years to wreak havoc.