the law of unintended consequences…

Posted on Tuesday 8 September 2009

Only graph nuts will care about this, but here goes anyway

If you look at this graph of the Federal Reserve’s Interest Rates – before Greenspan, lowering the rate in response to a downturn worked and afterwards the rate could be gotten back up to where it had been or higher. That means that there was a good buffer available for the next downturn.

 

After the early 1980’s, that was no longer true. What happened in the early 1980’s? Reagan [omics]; Deficit Spending; Tax Cuts; Deregulation; Greenspan. It’s pretty striking that the graph looks like a Christmas Tree. So, either Reaganomics changed the playing field OR Greenspan kept Interest Rates too low to have the tool available for the next downturn. I wonder if he thought he was doing something good – keeping the credit flowing as part of the Reaganite/Republican easy-money meme that almost buried us. Whatever he thought he was doing, he was wrong as rain…

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