Fed's role

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LePlouc's picture
LePlouc
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Joined: Aug 12 2008
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Fed's role

superchase wrote:
"Maybe the real culprit is none other than the Bush Administration. Perhaps the Fed's measures had a lot to be desired, but maybe they were only reacting to a very poor set of fiscal policies by that administration. Bush primed pumped the American economy with debt, lax lending policies, unrealistic tax cuts and budget projections. So really, what was the Fed supposed to do?"
Under the leadership of Paul Volcker, the Fed killed inflation by raising interest rates until inflation expectations were destroyed. Needless to say the Volcker took an incredible amount of political heat for that. So much so that, despite his success, Reagan did NOT renew his tenure.
You can bet your last n'gwee that Volcker's successors got the message loud and clear: "Do not displease your political masters...or else!"
The result is obvious for all to see; Greenspan and Bernanke were/are keenly aware of who hold the keys to THEIR personal well-being. Do you think the 300,000 dollars PER LECTURE that Greenspan pockets now has escaped being noticed? Hmmmm! Let me think about that for a nanosecond.
SO, the short answer to what the Fed should have done is: The Right Thing a.k.a. acknowledge the bubble and puncture it at its roots without any mercy. But that would have gone opposite to the wishes of their true masters, the banking elites and an Administration desperate to hide how bad their econ management has been. What better than create false wealth as an easy fix to this politically irritating problem, while allowing the banking industry to capture ever-increasing fees at every level of the housing bubble??

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