Friday, November 16, 2007

Alice In Wonderland Academics

"Economic theory, however, tells us that central banks should intervene to provide liquidity if the liquidity crisis risks disrupting the payments system thereby hurting 'innocent bystanders'. ... The argument that a bubble can never be recognixed ex ante is a very weak one. One had to be blind not to see the bubble in the US housing market, or the internet bubble. ... It is not inherently more difficult to stop asset bubbles that it is to stop inflation. And central banks have been very successful at stopping inflation", Paul De Grauwe at, 14 November.

What alternative world does Professor De Grauwe of the University of Leuven live in? Central banks cause inflation. Did the good Professor short say, Cisco in March 2000? Did he short the homebuilders earlier this year? What is this guy talking about?

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