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[jasonxe]

A guy im debating said ron paul couldn't predict the recession/housing pop.


No, he said the crisis was coming. You complain about Herman Cain not knowing a recession 3 years in advance.Ron Paul couldn't even predict the next year.

"The next recession, from which I’m sure we’re already suffering, will be even more pervasive worldwide than the one in the 1930s"
Ron Paul ~ September 6, 2001

I believe he got it from here. http://ronpaulquotes.com/chapters/2001-75.html#2001_Ron_Paul_75

[tsai3904]

There was a recession in 2002 and 2003 when the dot com bubble burst. Most free market economists will argue that we've been in a prolonged recession since that time that's only been interrupted with harmful government stimulus that produced GDP growth.

As far as the housing bubble, check out what Ron Paul said in late 2003:

http://paul.house.gov/index.php?option=com_content&task=view&id=258&Itemid=60


The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.