Fwd: RE: Weisbrot: the Long Haul

[Christian Gregory]

> How about the argument the (2) is the crucial mechanism -- that it caused
> a large part of (1) -- and that it was directly related to surpluses?
> I.e., that if we'd been running normal deficits, Fed policy would also
> have stayed the same, i.e., tight?

But was Fed policy consistently tight over this period? I thought the Fed
started easing rates in 95, after the Mexican bailout. The easing pattern
continued, didn't it, even through the cuts of 1998 in the face of the Asian
crisis? This pattern of cuts--three consecutive cuts beginning in Jan. of
95--started quite a bit before we were showing surpluses.

That would not negate the importance of AG's suspicion of NAIRU in helping
the bubble liftoff. His irrational exuberance schpiel aside, though, he also
seems at moments to really be interested in sustaining the market as an end
in itself, no matter what the imbalances.

Christian