In favor of bubble-free prosperity

Prescription for real prosperity

"One of the most obvious (ways) would be to raise short rates to a level higher than the underlying rate of inflation (i.e., 5% to 6%) and take back some of the absurd stimulus that Alan Greenspan has foisted on the economy repeatedly over the last decade. This would simultaneously increase savings, reduce consumption and hurl us into recession. But we are headed there anyway. So let's get on with it before even more damage is done."

Of course, the path to genuine prosperity was the path not taken by Greenspan. Even so, Bernstein advocates the asymmetrical approach favored by the former Fed chairman: Do nothing to stop the bubble, but when it inevitably bursts and threatens massive damage, attempt to ameliorate the downside. It is this asymmetrical approach that landed us where we are.

Bernstein's summation: "I would still reject Mellon's advice and those who echo it, because the consequences would be unthinkable."

Here again, he misses the point of our argument: The consequences are only unthinkable because a bubble was allowed to exist and grow to immense proportions. Stop the bubble, and you preclude the unthinkable.

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