Pimco’s Paul McCulley: Plosser ‘Wrong’ on Rate Hikes

Paul McCulley, a portfolio manager at Pacific Investment Management Co., talks about U.S. deflation and property values, and the outlook for Federal Reserve policy. McCulley said Philadelphia Fed President Charles Plosser was wrong in saying that the central bank should raise interest rates "sooner rather than later" to keep inflation from accelerating.

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00:00 McCulley discusses "paradox of deleveraging."
01:42 Deflation and sliding property values
02:14 U.S. needs "new" balance sheet.
04:01 Want Fannie, Freddie to be part of solution
04:39 Not seeing "armageddon scenario"
05:43 Plosser is "wrong" about raising rates.

Running time 06:56

Pimco’s Paul McCulley Says Plosser Wrong on Rate Hikes
Bloomberg, July 24, 2008 16:25 EDT

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  1. Simon commented on Jul 25

    Whats is paradoxical about the necessary “de-leveraging” It’s a crash. Everyone who made bad bets is getting a margin call. Householders, everyone. The banks’ assets are losing value much faster than they are able to replace it. Not surprising given the way they leveraged up in the first place.

    It’s not that they are de-leveraging. It’s that they can’t de-leverage. Who lent them the money to play the game? China, Saudi Arabia. Why did they lend them the money? So they would lend it to Jane and Jake so they could purchase the SUV and the flat screen TV to complement the new house which would only ever go up on value.

    Who suffers? We all will. Who do we blame? The American Dream. To much dreaming about unimportant things.

  2. JustinTheSkeptic commented on Jul 25

    Isn’t “back-stop,” just another name for “price support?” Since we have been back-stopping our whole economic system for several decades now, why is it so hard to believe that we can’t fix the problem anymore by supporting it, only by letting the market mechanistically fix the problem will we ever get to the proper equilibrium.

  3. CNBC Sucks commented on Jul 25

    JustinTheSkeptic, yes. How about another name? Lunacy. I can only take so much of people characterizing a correction in inflated housing prices deflation. I nearly fell out of my chair when Ron Insana said the same thing a couple of weeks ago, but the deflation propaganda is spreading. What’s happened is we have an economic system that built itself on people having a huge portion of their net worth in housing prices and so you have calls for government and the Fed to do everything in their power to prop those up, no matter the consequences to the US dollar and real productive wealth.

  4. Mista B commented on Jul 25


    That’s the most concise, accurate comment I’ve read about this mess since the housing bubble began.

  5. InvestmentBanker commented on Jul 25

    Very concise, well articulated–and right, if you are trying to get ‘bailed out’. There was a bubble, it popped and the people who bought in are getting killed. It is only ‘necessary’ for Uncle Sam to ‘take the other side of the trade’ if you made a bad bet, and if, of course, if you are NOT a taxpayer!
    Housing prices went up so fast that the average man could no longer afford a home, now they are headed down. That is GOOD for the working man/woman, home ownership is comming into reality for them.
    If, as a country, we ‘stop’ the deflation, we have just priced the average Jo/Jill out of the market. Save the Banks, kill the producers! The American Dream is about people, not banks, politicians or PIMCO. If the American People do not learn to differentiate between sincere sounding bankers trying to screw them and their own best interests, we WILL be a nation of ‘wage slaves’.
    Just previewed this and I sound like some ‘bleeding heart, tree hugging socialist’;however, reality says the greatest threat to America today is the smooth talking bankers preaching captialism for the profits and socialism for the loses. I sincerely hope we are smarter than this; but, I fear ‘not’.

  6. WakeUpAmerica commented on Jul 25

    Paul McCulley, as is his more charismatic boss Bill Gross, is just another keynesian inflationist only worried to protect PIMCO’s portfolio. Profits for PIMCO & Friends, losses to the American Public, courtesy of Uncle Sam’s bailouts and the FED’s printing dollars left and right. Average americans do not notice it, but the country is no longer a democracy, it has embraced modern fascism: profits for the elites, losses for the rest, CNBC for all.

  7. Mista B commented on Jul 25


    While you may be ticked off (and rightfully so), you don’t sound like a tree hugger to me! You sound more like a true capitalist, which the hucksters like McCulley, Gross, etc. certainly are not. It’s bad enough to hear whining from libs about government handouts, but it’s truly nauseating to hear it from millionaires and billionaires. I’m afraid this country has completely turned from its roots. Freedom is dying a slow death, as the guilty get to pass on the consequences of their actions to the innocent.

  8. winslow commented on Jul 25

    We are now seeing the effects of what Bush and his cronies have desired. Their philosphy began at least two decades ago for the “new” America. Now we have the results when one group gets too much power. They were completely wrong in their ideology. We will see a dramatic shift in November but it may be too late to prevent the US from it’s decline.

  9. CNBC Sucks commented on Jul 25

    It’s not too late for America. I don’t agree with everything the Democrats say (I was a Republican after all), but I truly believe if you get Obama plus sixty Democratic Senators in addition to a Democratic House, you are going to see some major changes for the better. We need to pry some tax revenues from the likes of McCulley, Gross, Bob Doll, and Larry Kudlow to do some necessary physical / non-financial things that I won’t get into in this blog or even my own.

  10. nathan commented on Jul 25

    I’m working on avoiding inflation in my entertainment budget.

  11. nathan commented on Jul 25


    “I am” vs. “I’m am”

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