Paul Krugman writes in his blog, in support of her bid as Fed Chairman, that Janet Yellen “has been consistently right’.
Keeping in mind that this is coming from the guy who advocated that the Fed lower interest rates in order to create a housing bubble, I spent 2 minutes Googling Yellen’s record on the bubble and found the following, from a speech she gave in 2005. While she did seem to recognize that there was a bubble — hardly much of a feat; Krugman, too, by 2005 recognized this, but few were calling it as early as Ron Paul, who predicted it as early as 2001, when the Fed began its low-interest rate policy in the wake of the dot-com bubble. And while Ron Paul was warning years prior that the housing bubble, when it burst, would precipitate a major financial crisis, here’s what Yellen had to say about it:
First, if the bubble were to collapse on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?
My answers to these questions in the shortest possible form are, “no,” “no,” and “no.”
She went on to argue against a “tighter policy”, meaning that the Fed should continue its inflationary monetary policy to lower interest rates — the very policy that caused the housing bubble.
