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Those are actually somewhat rare. US in the late 70s with Paul Volker and the famous British Pound short by Soros which interrupted the government chocking off

Those are actually somewhat rare. US in the late 70s with Paul Volker and the famous British Pound short by Soros which interrupted the government chocking off the economy with high interest rates, broke the pound and saved the UK from a recession. Do you have more prominent examples? It's usually policy error in the other direction - keeping easy money for too long. I.e. you don't handle a catastrophe by fixing the down leg (that's emergency measures with bad side effects), you prevent the up leg. Alan Greenspan will be forever remembered and hated by some after his efforts to create the dotcom and the housing bubble.

rapsey 7y ago
The Japanese central bank single handedly caused the lost decade.
- mcguire 7y ago
  Single handedly?
- hogFeast 7y ago
  They didn't. That is a misconception borne out of reading our methods of economic policy onto a different context. The MoF, not the BoJ, controlled not only monetary policy but pretty much all aspects of the economy (they even directed lending by banks at the level of individual loans). This changed in the late 90s but through to the early 90s, it was all the MoF.
surfmike 7y ago
The policy error in 2008 was not enough easy money early enough. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2019/5/cj-v39n2-12.pdf https://www.cato.org/sites/cato.org/files/serials/files/cato...
hogFeast 7y ago
It happened in 1958 (it may have been '56, my memory is poor), and 1920-1. In the case of the Fed, the last central banker to take this approach was Martin in the 1960s ("leaning against the wind")...and his legacy ended up being inflation. You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this. Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.
- H8crilA 7y ago
  They wanted high rates because ERM was the main policy goal of the prime minister. Super high rates were also choking the economy. It was a choice between ERM and easier recession, and the breakage of the pound forced them to no ERM and easier recession. The bundesbank was the one to put the final nail in the UK Euro coffin. Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
  - hogFeast 7y ago
    > They wanted high rates because ERM was the main policy goal of the prime minister. Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages? The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s). Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.

rapsey 7y ago

The Japanese central bank single handedly caused the lost decade.

mcguire 7y ago
Single handedly?
hogFeast 7y ago
They didn't. That is a misconception borne out of reading our methods of economic policy onto a different context. The MoF, not the BoJ, controlled not only monetary policy but pretty much all aspects of the economy (they even directed lending by banks at the level of individual loans). This changed in the late 90s but through to the early 90s, it was all the MoF.

surfmike 7y ago

The policy error in 2008 was not enough easy money early enough. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2019/5/cj-v39n2-12.pdf https://www.cato.org/sites/cato.org/files/serials/files/cato...

hogFeast 7y ago

It happened in 1958 (it may have been '56, my memory is poor), and 1920-1. In the case of the Fed, the last central banker to take this approach was Martin in the 1960s ("leaning against the wind")...and his legacy ended up being inflation. You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this. Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.

H8crilA 7y ago
They wanted high rates because ERM was the main policy goal of the prime minister. Super high rates were also choking the economy. It was a choice between ERM and easier recession, and the breakage of the pound forced them to no ERM and easier recession. The bundesbank was the one to put the final nail in the UK Euro coffin. Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
- hogFeast 7y ago
  > They wanted high rates because ERM was the main policy goal of the prime minister. Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages? The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s). Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.