Krugman: Why the Fed did what it did and why its critics were wrong och svenska bostadspriser

februari 08, 2026

The Global Financial Crisis of 2008 and Its Aftermath

Great Moderation. However, calm never lasts. In 2008 the United States and the world economy as a whole were wracked by the global financial crisis.

The Fed’s response to that crisis was deeply controversial, with harsh criticism coming especially from the political right. The turning of the political wheel has now put the people who were proved wrong about monetary policy in charge of Trump administration policy.

When that bubble deflated, starting in 2005, the economic consequences were severe. Real estate is a very big sector: The plunge in housing prices when the bubble burst wiped out wealth equal to 40 percent of GDP, the equivalent of $12 trillion today.

The plunge in home construction slashed total spending by more than 4 percent, the equivalent of a trillion-dollar plus hit today.

The housing bubble was financed in large part by loans from “shadow banks”.

RE: Shadow Banks

https://englundmacro.blogspot.com/2022/11/banks-need-to-worry-about-shadow-banks.html

After Lehman Brothers – a prime nexus in the shadow banking system -- failed in September 2008, the U.S. financial system was in full-blown panic

Fed created a Commercial Paper Funding Facility to buy short-term business debt in order to satisfy the liquidity needs of businesses across the country. This facility quickly bought $350 billion in such debt, then wound down its holdings as the financial system eventually stabilized. “quantitative easing” or QE for short.

This problem — known either as the “zero lower bound” or, for historical reasons, as the “liquidity trap” — wasn’t a complete surprise either to economists or to the Fed. It was recognized as an issue in the 1930s.

After Lehman Brothers – a prime nexus in the shadow banking system -- failed in September 2008, the U.S. financial system was in full-blown panic

Paul Krugman Feb 08, 2026

https://paulkrugman.substack.com/p/federal-reserve-101-part-ii-the-global

Paul Krugman Substack

https://paulkrugman.substack.com/

The taper tantrum and Kevin Warsh

When the Fed has embarked on taking down its securities holdings, it has repeatedly caused disruptions to money markets.

In 2013, even a signal it would stop boosting its purchases sparked global volatility, in an episode known as the taper tantrum.

https://englundmacro.blogspot.com/2026/02/the-taper-tantrum-and-kevin-warsh.html

The “Great Moderation” is the name often given to the period from the mid-1980s to 2007, when the Federal Reserve kept inflation and economic growth relatively stable… until it all collapsed in spectacular fashion in the global financial crisis of 2008.

https://englundmacro.blogspot.com/2020/02/has-great-moderation-returned-and-is.html

Nobel Prize–winning economist Joseph Stiglitz och Rolf Englund om ZIRP.