Democrats have been blaming greedy businessmen and lack of regulation for the mortgage crisis and economic meltdown.
Wrong! says economist John Taylor.
Government, through bad monetary policy, both created and burst the bubble.
Money Q:
"The classic explanation of financial crises is that they are caused by excesses -- frequently monetary excesses -- which lead to a boom and an inevitable bust. This crisis was no different: A housing boom followed by a bust led to defaults, the implosion of mortgages and mortgage-related securities at financial institutions, and resulting financial turmoil."
Thus our King Kong economy was knocked off its perch on the Empire State Building.
Read it all.
That is quite the indictment of the Bush administration.
ReplyDeleteThe Fed held its target interest rate, especially in 2003-2005, well below known monetary guidelines that say what good policy should be based on historical experience.... There is also evidence the excessive risk taking was encouraged by the excessively low interest rates.
and
Early on, policy makers misdiagnosed the crisis as one of liquidity, and prescribed the wrong treatment.