[OPE] Barkley Rosser: "Was I Wrong About The Current Economic Crisis"

EconoSpeak: Where I Was Wrong About The Current Economic Crisis

Monday, December 1, 2008
Where I Was Wrong About The Current
Economic Crisis
There seem to be lots of econoblogsters confessing
their sins of bad forecasting out there. I will do so also, perhaps
especially because I have been parading around the econoblogosphere
bragging about having called the housing bubble, the derivatives mess, and
that the whole thing would lead to a recession, without having called the
latter too early as some who are now being widely praised did. My error
was to think that the crash of the housing bubble would lead to a
long-awaited crash of the dollar, given that perhaps the most extreme of
deep imbalances in the world economy is the massive US current account
deficit that has led to the US becoming by far the largest net foreign
debtor in world history. I thought the housing and derivatives crashes
would catastrophically crash the dollar. I was wrong.

Instead
we had that old bizarre phenomenon of the dollar as the ultimate
"safe haven," with US Treasury securities being the ultimate
safe haven within the safe haven, even as measurable risk spreads on such
securities have widened noticeably in this crisis (heck, nothing is safe).
So, instead of the dollar crashing, it has risen noticeably in the last
few months, from a low of around 1.6 to the euro to around 1.26 today, or
thereabouts. And 90-day Treasury bills are yielding an astoundingly low
one basis point, which is effectively negative in nominal terms, given
purchase fees, and while looking like a nasty liquidity trap, does not at
all indicate any problems for the US Treasury in borrowing money, despite
our massive foreign indebtedness and dependence on the kindness of strange
foreigners, especially the Chinese, to fund our forthcoming fiscal
stimulus.

Posted by Barkley Rosser at 5:30 PM

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Received on Thu Dec 4 08:51:30 2008