Loose money in the 20's that allowed for a bubble and subsequent stock market crash, followed by an overcorrection of tight money that strangled banks and individuals struggling to recover. Similar situation in the 2000's.
Quote from: HurtfulTurkey on January 27, 2015, 01:23:00 PMLoose money in the 20's that allowed for a bubble and subsequent stock market crash, followed by an overcorrection of tight money that strangled banks and individuals struggling to recover. Similar situation in the 2000's.I don't see how money was loose during the Roaring Twenties when deflation was a constant worry for the economy; and I don't see how money was loose in the 2000s when the bubble (which I'd argue was irrelevant and probably not even a bubble to begin with) had begun developing in 1997.
Quote from: Meta Cognition on January 27, 2015, 01:29:55 PMQuote from: HurtfulTurkey on January 27, 2015, 01:23:00 PMLoose money in the 20's that allowed for a bubble and subsequent stock market crash, followed by an overcorrection of tight money that strangled banks and individuals struggling to recover. Similar situation in the 2000's.I don't see how money was loose during the Roaring Twenties when deflation was a constant worry for the economy; and I don't see how money was loose in the 2000s when the bubble (which I'd argue was irrelevant and probably not even a bubble to begin with) had begun developing in 1997.Interest rates were higher than inflation but the the Fed was expanding the money supply and keeping rates down. Sounds pretty loose to me.
Quote from: HurtfulTurkey on January 27, 2015, 01:50:57 PMQuote from: Meta Cognition on January 27, 2015, 01:29:55 PMQuote from: HurtfulTurkey on January 27, 2015, 01:23:00 PMLoose money in the 20's that allowed for a bubble and subsequent stock market crash, followed by an overcorrection of tight money that strangled banks and individuals struggling to recover. Similar situation in the 2000's.I don't see how money was loose during the Roaring Twenties when deflation was a constant worry for the economy; and I don't see how money was loose in the 2000s when the bubble (which I'd argue was irrelevant and probably not even a bubble to begin with) had begun developing in 1997.Interest rates were higher than inflation but the the Fed was expanding the money supply and keeping rates down. Sounds pretty loose to me.Interest rates are an exceedingly poor way of looking at the stance of monetary policy; the central bank only has limited control over them and they're effected by economic phenomena from long-term inflation expectations to the Fisher Effect. In the same way, the rates were lowered during the 2002-2004 period, sure, but like I said the bubble began in 1997--largely due to nonmonetary factors--probably wasn't even that much of a bubble and aggregate demand was 2pc below trend by 2002 due to prior monetary tightness. Sorry if this is a bit jumbled; eating dinner.
when we're talking about loose or tight monetary policy we're literally talking about the artificial rates the Fed is imposing.
Quote from: HurtfulTurkey on January 27, 2015, 02:01:43 PM when we're talking about loose or tight monetary policy we're literally talking about the artificial rates the Fed is imposing.The point being that's a bad way of judging monetary policy, especially when we have metrics like inflation and aggregate nominal income. Using interest rates only ever work if you can isolate the short-term liquidity effect from a monetary injection or reduction (as we could in, say, 1984), but when rates move for other reasons it can give dangerous impressions about what the Fed is doing or what it can or can't do. Fundamentally, viewing interest rates as the prime indicator leads to a credit- and debt-driven view of the economy which, at least to me, doesn't seem terribly justified. Also, thanks for engaging in this conversation by the way. Probably the first serious discussion about economics I've had here.
I suppose there's more to monetary policy than just interest rates, but when I learned it it was described by the interest rates; high is generally tight, low is generally easy. I'd still say money was loose prior to the 20's, though money was expanding in the 20's, and even though rates were increasing they were still being kept low artificially.
What do you blame the most for the Great Depression and Great Recession?
