Sunday, March 20, 2011

Larry Summers on bubbles

I'm pretty sure this interview with Larry Summers in The International Economy was serious ... but this statement leaves me unsure:
Bubbles lead to excessive optimism, excessively high prices of assets, and excessive creation of those assets, whether they’re factories or houses or shopping centers. Bubbles then lead to excessive borrowing against those assets.
Huh. Here I thought bubbles were created by excessive optimism, excessively high prices of assets, excessive creation of those assets, and excessive borrowing against those assets. I didn't know bubbles were the precursors of those conditions.

Professor Summers, is this the caliber of advice you gave President Obama?

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