Goldilocks, R. I. P. (Part 2)

<< Read More: Goldilocks, R.I.P. (Part 1)

Goldilocks is a conceit of monetary central planning and its erroneous predicate that falsifying financial asset prices is the route to prosperity. In fact, it only leads to immense and unstable financial bubbles which eventually crash-----monkey-hammering the purported Goldilocks Economy as they do.

It also leads to a complete corruption of the economic and financial narrative on both ends of the Acela Corridor.

To wit, the Fed's serial financial bubbles on Wall Street are falsely celebrated as arising from a booming main street economy. In fact, they are an economic dagger that bleeds it of investment and cash and exposes it to "restructuring" mayhem from the C-suites when the egregious inflation of share prices and stock option values finally gets crushed by another financial meltdown.

In this context, the Washington Post (WaPo) is out this morning with brutal takedown of our friend Larry Kudlow for his whistling past the graveyard on the eve of the financial crisis and Great Recession. It would be an understatement to say he didn't see it coming, but it's also completely unfair not to acknowledge that 95% of Wall Street and 100% of the FOMC were equally bubble-blind.

In fact, when Larry Kudlow waxed eloquently in a piece in the National Review about the awesome economy the George Bush Administration had produced in December 2007, he was just delivering the Wall Street consensus forecast for the coming year:

 There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.......In fact, we are about to enter the seventh consecutive year of the Bush boom.

Well, not exactly. The worst recession since the 1930s actually incepted that very month and 10 months latter came Washington's hair-on-fire moment when the monetary and fiscal spigots were opened far wider than ever before--- bailing out everything that was collapsing, tottering, moving or even standing still.

Still, Kudlow (like most of Wall Street) was not about to give up on his love affair with Goldilocks until she positively betrayed him. Thus, by February 2008 when the economic clouds were gathering, Kudlow insisted that,

Maybe we are going to have a mild correction. Maybe not,” adding: “I’m going to bet that the economy will be rebounding sometime this summer, if not sooner. We are in a slow patch. That’s all. It’s nothing to get up in arms about.”

By summer, of course, there was no economic rebound and the housing market was going down for the count. But Larry was not about to give up on Goldilocks, and, in fact, espied the bottom of the housing crunch and better times for the economy straight ahead:

Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.....For example, the median existing home price has increased four consecutive months and is up 10 percent since February. 

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Gary Anderson 2 years ago Contributor's comment

Larry Kudlow is a smart man with silly views. Perhaps they are scripted, or deliberate, but they certainly are unusual: www.talkmarkets.com/.../larry-kudlows-strange-views-about-inflation