What I despise about the Fed, more than anything, is its unwillingness
to admit past mistakes. It’s obvious to anyone who knows anything
about the business cycle that booms cannot be created without excessive
credit expansion/monetary expansion. That Bernanke is going to blame
derivatives and money substitutes and unsupervised lending parameters
as being the cause of the expansion and not just a symptom is totally
intellectually dishonest and further erodes my confidence in the Fed as an institution.
Oh, the fed does admit past mistakes. Just not the current-past mistakes. It’s much the same as Khruschev denouncing the murders of Stalin, but not saying anything about the excesses during his rule. Bernanke admitted that the fed had a part in the Great Depression, but he’s unwilling to admit that his or Greenspan’s policies had any part in the current problem.
It was the monetarist idea that the Fed didn’t act quickly enough to prevent deflation and a massive credit contraction in 1929 that led Bernanke to act so quickly to prevent deflation and alleviate the credit contraction in this crisis. He never said that the credit expansion leading up to the stock market crash of 1929 had anything to do with interest rate manipulation.
What I’m trying to say is that artificially low interest rates, created by a central bank (or by any institution), somehow always seems to avoid being labeled the cause of the boom/bust cycle even though a cursory examination of past business cycles reveals that a monetary and/or credit expansion is always necessary to cause the overspeculation and overtrading that eventually leads to asset bubbles that ultimately must burst.
But people like to blame the rich and praise the regulators. So this theory is wrong not because of myths or bad arguments, but because it doesn’t blame people for being rich.
By the way, this article foreshadows the next move which could conceivably be a call for more stimulus. I say this because, at some point, the Fed is going to have to raise interest rates and that will slow the “recovery” so we may see a greater call for more fiscal intervention in the form of a second stimulus. The raising of the debt ceiling, I think, gives further credence to my prognostication. However, I have definitely been wrong before so we’ll see what happens.
But he did admit a mistake, in his view. It wasn’t the correct mistake to own up to, but he did own up to…something, at any rate. And only for those long dead.
Of course. And the reason that the mainstream doesn’t lay such blame is that it’s so much easier to blame the evil greedy capitalists. Sells more copy, don’chaknow.
The problem with the Fed is it doesn’t look past monetarism for solutions. They only see deflation or inflation as a soltuion to the problem. RIght now the state of the economy in the United States and the rest of the world can’t be solved by one or the other.
By the way, Japan tried rapid credit expanison and the government is in debt 140% of it’s GDP, there is no investment oppurtunities and the economy is on the verge of collapse. It’s only saving grace is it’s high amount of exports to Europe and America. You would think that with more money availble to businesses that it would spur the economy, but Japan and the US is in an usual situation where there is little investment oppurtunities and massive amounts of over capacity. Credit expansion will lead to more manufacturing heading to overseas, more debt accumulation and hyperinflation. It’s a bandaid to a gushing wound.
Now the obvious logical conclusion to draw would be that our “recovery” has been a bogus result of “quantitative easing,” but I’m sure that realization has escaped Krugman.