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Bernanke says low interest rates didn't cause financial crisis (pg. 2)
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| pkcRAISTLIN |
| quote: | Originally posted by Lilith
Do they really need to state the obvious? |
uh, did you read some of the posts in this thread? ;) |
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| Lilith |
| quote: | Originally posted by pkcRAISTLIN
uh, did you read some of the posts in this thread? ;) |
People are entitled to theorise all they like, as long as it isn't with my money :p |
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| Shakka |
Easy money is not the only ingredient required to create an asset bubble...however, it is a critical ingredient. There have been times in the past when money was easy but animal spirits didn't run wild. It's a very slippery slope though.
Edit: Today, former Treasury Undersecretary John Taylor said not so fast. "The evidence is overwhelming that those low interest rates were not only unusually low, but they logically were a factor in the housing boom and therefore ultimately the bust...It had an effect on the housing boom and increased a lot of risk taking." |
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| Shakka |
| quote: | Originally posted by Krypton
I would say the Fed is the gas station, the economy, the driver behind the wheel. The Fed pumps the gas. The economy decides where to go with their full tank of gas. I don't see it as very rational to blame the Fed for where the economy decided to go all by themselves. Banks and investors euphorically underwrote, bought, and sold subprime mortgages, and their accompanying derivatives, with greedy glee. I still haven't seen a good reason why the Federal Reserve is fully responsible for all this. I'm not referring to pmoisse, who said, "No one segment of the economy is squarely to blame." I am referring to those, capitalizt I believe, who think it was all the Federal Reserve's fault. As Ron Paul says, "End the Fed." I'm referring to these ridiculous arguments. |
The problem is, when they're giving away the gas for free, what's to stop people from driving all over the place, even off a cliff?! The Fed might as well have been giving away free ammunition to a crowd of gun-toting manic-depressive idiots. |
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| Halcyon+On+On |
| Yeah, but what does this have to do with the military? |
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| jerZ07002 |
| quote: | Originally posted by Shakka
The problem is, when they're giving away the gas for free, what's to stop people from driving all over the place, |
practical reality! If work is only 20 miles from my house, I'm not driving 80 miles to work just because i don't have to pay for gas. |
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| Halcyon+On+On |
| No, see, you misunderstand - you'd drive the 80 because it's in your nature as a low-income citizen to waste everyone else's money and time. I mean, isn't that every poor person's directive? To be a burden just to spite the system and take money out of Shakka's pocket? |
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| pkcRAISTLIN |
And let us not forget that the Fed sets the cash rate, it doesn’t determine what interest rates are delivered to the customer through lending institutions.
oh, and lol @ halycon. |
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| Krypton |
| quote: | Originally posted by Shakka
The problem is, when they're giving away the gas for free, what's to stop people from driving all over the place, even off a cliff?! The Fed might as well have been giving away free ammunition to a crowd of gun-toting manic-depressive idiots. |
What jerZ07002 said. |
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| Shakka |
| quote: | Originally posted by Krypton
What jerZ07002 said. |
What I said earlier.
And as far as practical reality, I appreciate the example, but if we fully compare the analogy, I think it still holds.
The argument is not that only artificially low interest rates (a.k.a. "free" money) were the sole cause of the calamity, but that they were a driving factor (if not the most dominant factor) fueling the bubble...much like gas fuels your car. Now, where you drive it is another issue entirely.
To continue...other important factors in bubble creation include animal spirits run amok, financial innovation, loose oversight, etc. I'll bet JerZ would think twice if, in addition to free gas for his trip, he was also given a company car and commuted on a freeway with no speed limit and no police. Throw on the prospect of greater riches and free gas is suddenly looking better and better for a few minutes longer in the car.
I hate long commutes too, but fwiw, my brother-in-law commutes 2.5 hours each way several times a week. It blows my mind. |
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| Krypton |
| I'm not saying low interest weren't a factor. I don't think they were THE factor as I have been hearing for years. The Fed topping off the gas tank does not excuse the driver from what they decide to do with the gas. I still blame the driver itself (financials) and deregulation for this calamity. |
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| Shakka |
| quote: | Originally posted by Krypton
I'm not saying low interest weren't a factor. I don't think they were THE factor as I have been hearing for years. The Fed topping off the gas tank does not excuse the driver from what they decide to do with the gas. I still blame the driver itself (financials) and deregulation for this calamity. |
Dude, the driver is you and me and every other nutbag money and self-worth driven capitalist. Some of just chose to drive more responsibly than others. Apparently a lot of people didn't get the memo when they began posting speed limits and installed toll-booths.
You must be on a different road.
Studies show that easy money is the predominant facilitator of financial excess. Where it manifests itself is where the bubble is, be it tulips, technology or real-estate. But first, the funds to pursue risk (necessarily coupled with the [/i]desire[/i] to take risk) must be present. Without that, it's incredibly hard for the other (absolutely necessary) factors to gain traction.
I know we're not really arguing much here.
Oh yeah, and I forgot "ultimately the willing suspension of disbelief" as a factor. It is a critical one. |
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