Federal Reserve | timiacono.com

Learning the Wrong Lessons … Again

This New York Times review of the Federal Reserve’s 2009 transcripts provides ample evidence that, as was the case for the Great Depression some 80 years prior, the wrong lessons are being learned from the financial crisis and the Great Recession it spawned.

When Ben S. Bernanke walked into the Federal Reserve’s ornate boardroom in December 2009, the officials who were gathered around the long table gave the Fed’s chairman a standing ovation.

Mr. Bernanke had just been crowned Person of the Year by Time magazine. The recession had ended, unemployment had crested and Mr. Bernanke was widely regarded as singularly responsible.

But the return to normalcy that Mr. Bernanke and his committee began to chart at that end-of-the-year meeting soon proved premature. The Fed had arrested the financial crisis, but the moment would also turn out to be the beginning of a yearslong series of failures to provide a sufficiently large dose of stimulus to restore the battered American economy to its previous health.

Then again, maybe it’s just me…

I’ve always assumed that an economy and financial system that lurched from one central bank enabled asset bubble to another wasn’t “normal” when, in fact, maybe it is.

It appears that the lesson being learned over the last six years is that, unlike the internet stock bubble-to-housing bubble transition, the Fed just didn’t do enough to facilitate the housing bubble-to-whatever we end up calling the next bubble transition.

Interest Rates are Kinda Low

From this item at Business Insider the other day via the Bank of England and Citigroup comes the graphic below depicting just how interesting these times are, interest rate-wise.

Sourced from the Babylonian empire to Greece, the Roman Empire, Byzantium, Netherlands, Italy, the U.K., the U.S. – it’s a veritable stroll through monetary history…

It seems that those who write about billionaire Warren Buffett may have already laid claim to using the name Warren as a verb, but with any more contentious exchanges like the one yesterday with Federal Reserve Chairman Janet Yellen, Senator Elizabeth Warren (D-MA) may give the Oracle from Omaha a run for his money (i.e., Yellen was Warrened yesterday).

Also see:

Elizabeth Warren went full Elizabeth Warren today at a Senate hearing – Washington Post
Warren Sharply Criticizes Fed Staff Over Dodd-Frank Views – American Banker

On Root Cause

My engineering background is no doubt responsible for the discomfort that is experienced when listening to others talk about root cause (i.e., in the peer reviewed world of hard sciences, you can’t just say you’ve found the root cause) and the latest example of this comes from the White House via this Friday Funny at reason.com.

Other examples in the world of economics and finance involve “the lack of aggregate demand” being the proximate cause of our recent malaise and you can take your pick of many root causes (which are highly dependent upon your world view and who signs your paycheck) for the worst financial crisis since the Great Depression that, almost uniformly, reject the view that, as so eloquently noted by Pavlina Tcherneva in this item at New Economic Perspectives, “We live in a casino economy driven by serial asset bubbles”.

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