Former Fed Governor Predicts “Wrenching” Market Adjustment
Lawrence Lindsey, a Governor of the Federal Reserve from 1991 to 1997, was right before. And got fired for it. Reality was too inconvenient.
In December 2002, as George W. Bush’s economic adviser and Director of the National Economic Council at the White House, he fretted out loud that the invasion of Iraq would be a lot more expensive than supporters of it were claiming. Clearly he’d failed to drink the Kool-Aid. Instead of peanuts, it would cost as much as $200 billion, he said. It shook the White House at its foundations, the fact that he had the temerity to say this.
The Atlantic explains:
Bush instead stood by such advisers as Paul Wolfowitz, who said that the invasion would be largely “self-financing” via Iraq’s oil, and Andrew Natsios, who told an incredulous Ted Koppel that the war’s total cost to the American taxpayer would be no more than $1.7 billion.
As it turns out, Lawrence Lindsey’s estimate was indeed off — by a factor of 10 or more, on the low side.
So maybe people should listen to him. And maybe, if his record repeats itself, the disaster he warns about is going to be a lot more costly in the end than the worst-case scenario he is now predicting.
Lindsey was speaking during a panel discussion on Fed policy at an event sponsored by the Peterson Foundation, MarketWatch reported. And once again, he dared to say what everyone already knew, but what the financial establishment on Wall Street fights tooth and nail: The Fed has dragged out the normalization of interest rates “way beyond what is prudent.”
He explained that in graduate school, if you suggested that the federal funds rate should be kept at zero while the unemployment rate is 5.4%, which is exactly what the Fed has been doing, “you would have been laughed out of the classroom.”
…click on the above link to read the rest of the article…
