Bloomberg columnist Barry Ritholtz interviewed Paul McCulley, former chief economist at PIMCO, and often mentioned FOMC candidate on the Fed’s performance.

The Podcast is over two hours long, so let’s just go with Ritholtz’s brief summary: McCulley Demands Apology on Behalf of the Fed.

McCulley noted those who claimed QE and ZIRP were going to cause inflation and the collapse of the dollar were totally wrong, and he demanded these critics of the Federal Reserve owe former Ben Bernanke an apology. Had the Fed Chief listened to them, we would have found ourselves in a modern day depression.

He is leery of those who believe the Government and Federal Reserve should have let the crisis run its course on its own, with zero interventions. He is especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.

The full podcast is available on iTunes, SoundCloud and on Bloomberg.


In a blend of a monetarist and Keynesian thinking, McCulley supports Fed policies of QE and is “especially harsh on the Austerians, whom he said made the recovery weaker than it need be by thwarting traditional Keynesian stimulus.”

For starters, I dispute the notion that without QE and intervention that “we would have found ourselves in a modern day depression” as Ritholtz maintains. Ritholtz’s claim is a poorly-formed hypothesis presented as fact.

Yes, it’s true that many in the Austrian camp predicted a dollar crash and high inflation. But I am in the Austrian camp and debt deflation has been my model, and still is my model.

As for an apology, what about an apology from the Fed for blowing serial bubble after bubble of increasing amplitude?

It’s inane to demand an apology from those who warned in advance, and correctly so, of the housing bubble and subsequent crash.

In a twist of irony, McCulley gloats over the alleged lack of inflation, but it’s pretty clear he has his blinders on as to what inflation is and ways it can be spotted. In the case of Fed policy, inflation did not manifest itself in the CPI, but rather in asset bubbles, again and again.

Challenge to Keynesians

Only Keynesian and Monetarist fools (there is no more polite word), believe a low CPI is a big concern.

I repeat my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit”.

Consumer Price Deflation NOT Damaging

Even the BIS has concluded that routine consumer price deflation is no threat. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?

Income Inequality and Leverage

China and the emerging markets are imploding right now. Leverage is as high as ever. Fed policy induced corporations to go into debt to buy back their own shares at absurd prices.

Janet Yellen pisses and moans about income inequality, as does Ritholtz. Both are blind to the fact the Fed is the direct sponsor of it all.

Unfounded Gloat

This Keynesian gloat about the Fed saving the world is laughable because the final chapter has not been written. Assets are arguably as overpriced now as they were in 2000, and 2007. As with Japan, another lost decade in the US is likely.

Demanding an apology on behalf of the Fed is like demanding an apology on behalf of a doctor who cuts off the wrong leg of a cancerous patient if the doctor gets it right the second time.

It’s the Fed that owes us all an apology.

Barry, Paul, where the hell is that apology?

But Keynesians and Monetarists don’t apologize. They just demand more and more stimulus and debt in the inane belief the cure for a debt problem is more spending and more debt.

The average 7th grader can easily see the fallacies of such nonsense.

Unfortunately, as students progress through high school and college, repeated brainwashing by professors in academic wonderland about the alleged benefits of easy money has warped a lot of minds, in this case, the minds of the interviewer and the interviewee.

Mike “Mish” Shedlock