But what if the house price bubble developed because the economy needed a bubble to ensure continued growth? In that case the real cause of the crisis would be the economy's underlying macroeconomic structure.

We then come to the key of Bernanke's savings glut argument:

In this world of massive savings surpluses in a range of important countries and weak demand for capital from non-financial corporations, central banks ran easy monetary policies. They did so because they feared the possibility of a shift into deflation. The Fed, in particular, found itself having to offset the contractionary effects of the vast flow of private and, above all, public capital into the US.

In other words, to the best of my understanding, because China was hoarding US dollar reserves (and also as a result of the popping of the dot-com bubble), the US economy was in danger of monetary deflation and therefore the Fed had to run an expansionary monetary policy of real negative interest rates which kicked off the credit bubble.

...

So, once we manage to blame the Chinese for Greenspan's 18 months of negative real interest rates around 2003, we can say that

The big global macroeconomic story of this decade was, then, the offsetting emergence of the US and a number of other high-income countries as spenders and borrowers of last resort. Debt-fuelled US households went on an unparalleled spending binge - by dipping into their housing "piggy banks".

Except that the US households didn't go on an "unparalleled" "debt-fuelled" "spending binge". I would argue with Jerome that there was an "unparalleled debt binge" fuelled by the desire to maintain a standard of living in the face of declining real incomes.

Because until people in power, like Larry Summers, starts referring to the problems and solutions Palley identifies, things will never improve for the vast majority of the world's population

Business as usual, especially during the infamous last 35 years, have meant huge improvement in the standard of living for the vast majority of the global population. That the US middle class is not a part of that vast majority is beside the point.


Peak oil is not an energy crisis. It is a liquid fuel crisis.

It remains awkward and embarrassing when the bubbles pop, but rest assured the right people have already cleaned up.  

The Fates are kind.