If only it weren’t so freakin’ predictable…..
Bubble, Crash, Bubble, Crash, Bubble …
We will continue this cycle until we catch on. The problem isn’t only that the Fed is treating the symptoms instead of the disease. Rather, by irresponsibly promoting reckless speculation, misallocation of capital, moral hazard (careless lending without repercussions), and illusory “wealth effects,” the Fed has become the disease.
Alan Greenspan contributed to the late-1990’s market bubble by his embrace of the notion that 100 million lemmings leaping off of a cliff into the ocean can’t be wrong. Beyond a single bit of rhetorical lip service to the effect of “how do we know when irrational exuberance has unduly escalated asset values,” Greenspan aggressively accommodated that bubble. Once it crashed, the Fed sat on short-term interest rates in a way that directly contributed to the housing bubble.