Well, it is implicit in
In this world of massive savings surpluses in a range of important countries and weak demand for capital from non-financial corporations, central banks ran easy monetary policies. They did so because they feared the possibility of a shift into deflation. The Fed, in particular, found itself having to offset the contractionary effects of the vast flow of private and, above all, public capital into the US.
The Wolf/Bernanke argument is basically that China put the US in a no-win situation through its neomercantilist policies. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
The Wolf/Bernanke argument is basically that China put the US in a no-win situation through its neomercantilist policies. Well, given his believe, that the only institution with a mandate to act is the Fed, he may be right. With the single policy tool of short term interest rates, there are not too much things the US could do. Of course the Fed has some regulative power, but given, that it was the goal to create a housing bubble, regulation would have been counterproductive. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
And, are you sure Wolf is wrong on that point?
Wolf isn't wrong to point out that there would have been a nasty recession. They had a very nasty bubble that burst around spring 2001. That bubble could have been deflated harmlessly, but a lot of people (Greenspan very prominently among them) decided that they'd rather make it bigger before it crashed. So if they hadn't inflated a new bubble, they'd have had to deal with the wreckage from the last one.
So he says the Fed initiated the bubble consciously to do the job of a dysfunctional regular gov't. Essentially Wolf says, the real gov't isn't the official administration, but the Fed.
That doesn't sound like an unreasonable political analysis. But the point is that whether or not the real government is powerless to fight a recession, inflating a bubble to obfuscate the wreckage from the popping of the last bubble is grossly irresponsible. Because it won't make the wreckage go away, it'll just hide it. So now they have to deal with both the wreckage from the tech stock bubble, and the wreckage from the Mother Of All Bubbles. Yeah, it bought them three to seven years - depending a bit on how you count. But at the cost of amplifying the problem greatly.
When a fuse blows in your house, you do not replace it with a string of copper wire - you find the faulty equipment and repair it. Unless, of course, you're Alan Greenspan.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
And if you look at the timing it is clear that Bush wouldn't have been reelected if a nasty recession had hit in 2003. Real interest rates were negative in 2003-5, which resulted in a wave of remortgagings and home equity withdrawals. And then in 2004 you have USA Today: Greenspan says ARMs might be better deal (2/23/2004)
Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
The Wolf/Bernanke argument is basically that China put the US in a no-win situation through its neomercantilist policies. Well, given his believe, that the only institution with a mandate to act is the Fed, he may be right.
Well, given his believe, that the only institution with a mandate to act is the Fed, he may be right.
