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> They’re wilfully deflating the bubble American policymakers ignored in ‘08. The Fed was aware of the real estate bubble and tried to deflate it in 07-08. Bu
by nostromo 5y ago
> They’re wilfully deflating the bubble American policymakers ignored in ‘08.
The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn.
The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
- whimsicalism 5y agoThey knew it was too hot, but the market failure in the bond rating market hadn't been identified so they were operating off of flawed information. The real failure of the Fed was being way too tight monetarily after the crisis started though.
- tomputer 5y agoIt looks like they went from too tight to too loose: https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE I’m not an economist but that graph looks unhealthy.
- whimsicalism 5y agoMonetary base is irrelevant without looking at velocity (https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V) The Fed has been much more on point this time around than it was in 2008.