“All the evidence points to the fact that the Federal Reserve’s loose monetary policy did not cause the housing bubble, Ben Bernanke told students at the George Washington University School of Business today.
While he acknowledged that this issue is still very much up for debate—and added that increased demand for housing based on low interest rates could have contributed to the wave that caused the bubble—he gave three reasons for why the Fed should not be held completely responsible:
- “The boom and bust in the us was not unique.” Indeed, he specifically points to the U.K. as an example of a housing bubble even during tight monetary policy.
- “The increase in housing prices was way too large to be associated with the small changes in monetary policy.”
- “The timing of bubble, he argued, did not coincide with the Fed’s policy decisions. He asserted that 1998 was the start of a major uptick in housing prices—not when the Fed was aggressively lowering rates in the 2000s. That “was right in the middle of the tech boom,” Bernanke said, adding that it’s possible “the same mentality that was feeding stock prices may have been feeding house prices as well.”
He forgets to mention that lower rates increase the frequency and magnitude of bubbles. Let’s not forget the Fed didn’t direct the mal-investment, simply enacted policies that enabled and encouraged it.
TJWP,
You would like a book called Babylon’s Banksters.
http://www.amazon.com/Babylons-Banksters-Alchemy-Physics-Religion/dp/1932595791
Interestingly it would support the clam in that cycles will occur mathematically no matter what our input is. We simply exacerbate the highs and lows with our policies.
Interesting read indeud!