Mr. Paulson's turn

Maybe Alan Greenspan and Hank Paulson have a deal:  Only one of them will make fatuous remarks per 12-hour news cycle, so as not to upstage one another.

Greenspan had his turn yesterday with the release of his book, and now comes Paulson.  After the now pro forma acknowledgments that a "prolonged period of market turmoil" may be ahead but that the global economy remains strong, we get to the good stuff:

Mr Paulson acknowledged that bad lending practices were to blame for the present financial crisis, which has been triggered by the high number of American homeowners falling into arrears on their mortgages.

However, he added that “the whole world, including the US, has benefited from . . . credit availability”.

Translation: Yes, the Fed has flooded the world with liquidity, but it's a good thing, and any fallout like the housing bubble, while unfortunate, is far, far better than any other possible outcome — like, you know, letting the excesses of previous bubbles work themselves out.

Mr Paulson ruled out an immediate recession, saying that the United States’s economy would continue to grow in the second half of the year, despite the country’s housing slump.

The Treasury Secretary said that the credit crunch was the result of bad lending practices rather than any problems in the real economy. “We are already seeing modest reductions in the strains in some markets,” he said.

What's this "real economy" meme that's been spreading through the financial media of late?  And who started it?  As if people losing their homes to foreclosure, unable to keep the consumer-spending merry-go-round going at its customary pace, is somehow divorced from the "real economy."  I'm going to have to do some more exploration on this topic.  Anyway…

Mr Paulson described his country’s economy as “diverse” and “healthy”, with inflation controlled and growth good, and expressed confidence that growth would continue in the second half of the year. He said that the decline in US employment in August, the first drop in four years, had not been a surprise, “given where we are in the economic expansion”.

And where is that exactly, Hank?