Monday, January 23, 2012

Why the Fed Slept

Samuelson explains:
There's a paradox to economic policy. The more it succeeds at prolonging short-term prosperity, the more it inspires long-run destabilizing behavior by businesses, banks, consumers, investors and government. If they think basic stability is assured, they will assume greater risks -- loosen credit standards, borrow more, engage in more speculation, relax wage and price behavior -- that ultimately make the economy less stable. Long booms threaten deep busts...
... The Fed slept mainly because it overlooked the possibility of boom-bust. It didn't recognize that its success at sustaining prosperity -- for which Greenspan was lionized -- might sow the seeds of a larger failure. It bought into an overblown notion of economic "progress."
And there is every chance that politicians and the Fed will fall asleep at the wheel again. Read it all.

3 Comments:

Blogger CharlieSix said...

Having lived through both times referenced in the article I find the most troubling thing in Mr. Samuelson's article to be: "Since World War II, this has happened twice." The oft used phrase of Fool Me Once, Shame on You; Fool Me Twice, Shame of Me is useless in this case. Because when it comes to management of the nation's ecomony, Me (in this case it is actually We) cannot change what takes place at the Fed or in the Administration or the Congress. No, we cannot turn back the clock to 2006 when the first signs of the housing bust were noticed by the Fed and others and then change the course of action/inaction that became policy leading to our current economic decline. However, our current and future elected officials can learn from the past knowing the boom/bust cycle has occured twice since World War II. Hopefully we and our children will not 10 or 20 years from now have to endure what could potentially even more devestating "Fool me Thrice."

January 23, 2012 at 10:43 PM 
Blogger CharlieSix said...

Sorry for the double comment to the post. Sorry for not being able to find out how to delete the duplicate. Bob: Guidance, please...

January 23, 2012 at 11:29 PM 
Blogger Spencerblog said...

Taken care of, Charlie

January 24, 2012 at 4:38 AM 

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