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The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the ec

The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.

nimish 8y ago
The Fed (it's short for Federal Reserve, not some acronym) was created well after business cycles first appeared. The business cycle of boom and bust is characteristic of capitalism as a system, and if anything, the elastic monetary policy that the Federal Reserve allows has softened the blows.
mhneu 8y ago
Real estate market too. (What is hard to know is how much laundered money props up real estate in London, NYC, Miami, etc., and if we crack down on laundering, whether it will pop the bubble. Adam Davidson and Seth Hettena have written well on how we got here and why it will be difficult to unroll.)
dv_dt 8y ago
This management of bubbles also seems to completely contain real wage growth.
pascalxus 8y ago
Yes, but they should have started increasing interest rates at least several years before they started. They kept the party going too long. And when we get the next hangover, the interest rates will already be too low to zero.
AnimalMuppet 8y ago
> Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. And 1893, and a bunch of other times. But that might also be called the "business cycle". This nice tame business cycle that we've come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.
galieos_ghost 8y ago
fed intervention has been shown to make things worse, rather than a quick and violent correction we get the anemic recovery from the 2008 recession, combined with another 10 trillion in debt from the fed printing money to buy stocks and prop up Obama. Zero interest rake hikes during his entire presidency is a joke.
nickik 8y ago
You are disagreeing with all economists. 1929 was clearly a monetary policy issues and even left wing economist mostly agree with that.
tim333 8y ago
Business cycles have been around longer than the FED and in countries where it doesn't operate. Hence it probably didn't create them all. The FED tries to moderate the cycles I guess.
- tabtab 8y ago
  The "Tulip Bubble" of 1630's is arguably the first speculative bubble. No FED back then. Maybe the FED affects the timing and depth of the business cycle, but probably cannot prevent all "bubbles"...Unless, maybe you give the FED a clue-stick to use on stupid investors.
  - _dps 8y ago
    The historical view of tulip speculation has changed a lot in the last 20 years, but popular conception has not caught up. In a nutshell, it is now believed by several researchers to have been a very narrow phenomenon with minimal impact to the national economy. Per Wikipedia "While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility.[44] Any economic fallout from the bubble was very limited." https://en.wikipedia.org/wiki/Tulip_mania#Modern_views https://en.wikipedia.org/wiki/Tulip_mania#Modern_views Taken at face value, this suggests that the tulip "bubble" was dramatically different from either the dotcom or the mortgage bubble, which had wide ranging participation and damage. One could argue that the latter two would have been impossible without the Fed.
    - tabtab 8y ago
      Economies ran slower in those days so it's hard to compare. But the principle of hype and me-too-ism was present in the Tulip incident even if it didn't spill over to other economic areas. Whether human nature breaks big gizmos or small gizmos, it's still human nature at play. The FED did not make people pay way too much for silly dot-coms. But bubbles continued. I wonder if one can make a case that pre-FED bubbles were notably smaller than post-FED bubbles, factoring in the fact that the nature of modern economies may magnify bubbles. In other words, if there is a continuous upward slope to the size of bubbles from the 1600's up to now, then it would appear FED made no significant difference. But if there is a spike or jump when FED formed, it could mean they magnify them.

nimish 8y ago

The Fed (it's short for Federal Reserve, not some acronym) was created well after business cycles first appeared. The business cycle of boom and bust is characteristic of capitalism as a system, and if anything, the elastic monetary policy that the Federal Reserve allows has softened the blows.

mhneu 8y ago

Real estate market too. (What is hard to know is how much laundered money props up real estate in London, NYC, Miami, etc., and if we crack down on laundering, whether it will pop the bubble. Adam Davidson and Seth Hettena have written well on how we got here and why it will be difficult to unroll.)

dv_dt 8y ago

This management of bubbles also seems to completely contain real wage growth.

pascalxus 8y ago

Yes, but they should have started increasing interest rates at least several years before they started. They kept the party going too long. And when we get the next hangover, the interest rates will already be too low to zero.

AnimalMuppet 8y ago

> Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. And 1893, and a bunch of other times. But that might also be called the "business cycle". This nice tame business cycle that we've come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.

galieos_ghost 8y ago

fed intervention has been shown to make things worse, rather than a quick and violent correction we get the anemic recovery from the 2008 recession, combined with another 10 trillion in debt from the fed printing money to buy stocks and prop up Obama. Zero interest rake hikes during his entire presidency is a joke.

nickik 8y ago

You are disagreeing with all economists. 1929 was clearly a monetary policy issues and even left wing economist mostly agree with that.

tim333 8y ago

Business cycles have been around longer than the FED and in countries where it doesn't operate. Hence it probably didn't create them all. The FED tries to moderate the cycles I guess.

tabtab 8y ago
The "Tulip Bubble" of 1630's is arguably the first speculative bubble. No FED back then. Maybe the FED affects the timing and depth of the business cycle, but probably cannot prevent all "bubbles"...Unless, maybe you give the FED a clue-stick to use on stupid investors.
- _dps 8y ago
  The historical view of tulip speculation has changed a lot in the last 20 years, but popular conception has not caught up. In a nutshell, it is now believed by several researchers to have been a very narrow phenomenon with minimal impact to the national economy. Per Wikipedia "While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility.[44] Any economic fallout from the bubble was very limited." https://en.wikipedia.org/wiki/Tulip_mania#Modern_views https://en.wikipedia.org/wiki/Tulip_mania#Modern_views Taken at face value, this suggests that the tulip "bubble" was dramatically different from either the dotcom or the mortgage bubble, which had wide ranging participation and damage. One could argue that the latter two would have been impossible without the Fed.
  - tabtab 8y ago
    Economies ran slower in those days so it's hard to compare. But the principle of hype and me-too-ism was present in the Tulip incident even if it didn't spill over to other economic areas. Whether human nature breaks big gizmos or small gizmos, it's still human nature at play. The FED did not make people pay way too much for silly dot-coms. But bubbles continued. I wonder if one can make a case that pre-FED bubbles were notably smaller than post-FED bubbles, factoring in the fact that the nature of modern economies may magnify bubbles. In other words, if there is a continuous upward slope to the size of bubbles from the 1600's up to now, then it would appear FED made no significant difference. But if there is a spike or jump when FED formed, it could mean they magnify them.