The Stupidest Argument

Every time I read Kudlow, I feel like I just got a lobotomy.

In yesterday's furball at the National Review, he prattles on about the Fed and interest rates:

Does anyone really know what Alan Greenspan is up to? Does the Maestro himself know why the Fed’s target interest rate has been robotically raised eight consecutive times, with no end in sight?

OK, anyone who still calls Greenspan the Maestro is a moron. It's that simple. Someday, when they write the history books, we'll see pictures of Alan Greenspan and George W. Bush next to a description of what happened to the U.S. economy in the early 21st century - it won't be good ... and they won't call him the Maestro, unless it's in a mocking sort of way.

On the subject of how the moderate growth in money supply does not warrant further interest rate increases:

Take, for example, the latest monetary data from the Federal Reserve Bank of St. Louis. The data show a marked slowdown in key money-supply measures. The adjusted monetary base, over the past six months, is growing at a meager 2.6 percent annually. A broader money measure known as M2 has slipped to a below-normal 3.5 percent.

Even I know that the traditional measures of money supply have lost much of their significance recently - ever since the world's monetary system became so grotesquely distorted, where money is now created in manners and in quantities never imagined just a few decade ago when money supply measures could be used to make policy decisions.
In fact, one of the Fed Governors sat next to Larry during the April 1st jobs report on Squawk Box and said as much (well, he didn't use the word grotesque, but he did say that these measures are not nearly as important as they once were ).

And then he goes on to make the stupidest argument of the last two years - the argument about why there is not a real estate bubble. This argument is heard over and over again, coming out of the mouths of realtors, Federal Reserve officials, loopy authors of "get rich in real estate" books which were published this year, and most disturbingly, from the mouths of purchasers of "get rich in real estate" books which were published this year:

So what is he targeting? Maybe he has the so-called housing bubble in his sights, or the mortgage credit-expansion behind it. If he is watching housing, he’s looking the wrong way. The key reason behind the surge in housing investment is the shower of tax advantages that have fallen on this sector since the 1997 tax bill. On a tax basis, it’s much better to invest in homes than in stocks as home-sale profits are tax-free up to $500,000.

One Wall Street investment manager asked me when the Fed is going to “fix” housing. I asked him, “Do you mean that Greenspan should get a ladder and a paint bucket and actually begin work on a house?” “No, no,” he said. “When will the Fed stop the bubble?” To which I responded, “That’s not the Fed’s job.”

There is a bubble in Naples, Florida. But there are no bubbles in Syracuse or Hartford. Or do the central planners at the Fed think their mandate extends to controlling the local economies of each and every American city?

That's right. Rampant speculation in real estate has not infested every burgh in the country, and therefore there is not a problem. Or, as some Fed officials like to say - there is no national housing bubble, and therefore there is no bubble, and therefore there is nothing to be concerned about - prices may level out for a while and some areas may experience slight declines.

Real estate is local, and until all localities simultaneously experience 20% year over year increases, there's not a problem.

Truly, the stupidest argument of the last two years.