Fed Study Shows Loose Monetary Policy Leads to Disaster and Financial Crisis
Much of the Fed report is truly Geek stuff and incomprehensible formulas. But the conclusions and many snippets ring home.
Kindleberger (1978) Wicksell (1898) Mian, Sufi, and Verner (2017) Rajan (2005) and so on.
This study provides the first evidence that the stance of monetary policy has implications for the stability of the financial system. A loose stance over an extended period of time leads to increased financial fragility several years down the line. The source of this fragility is associated with swings in those financial variables that have been identified by the literature as harbingers of financial turmoil.
The study is welcome but the conclusion was obvious. The Fed kept interest rates too low, too long three times in the past twenty-some years. The result was a dotcom boom and bust, a housing bubble followed by the Great Recession, and what many call an "everything bubble" right now.
Mishn 6 March 2023
San Francisco Fed paper, Loose Monetary Policy and Financial Instability.
Why is it so hard to accept that speculative bubbles can burst?
Is the any escape? In aggregate no. For every seller there is a buyer. In this case a buy the dipper.
Mish 23 February 2022
Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken.
Rolf Englund blogg 5 december 2009