In 2000 the stock market, bloated by earlier Fed rate cuts, started falling when the tech bubble burst. Markets bottomed out in 2002, as the Fed slashed rates. Although people hailed then-chairman Alan Greenspan as “the Maestro” for providing a so-called soft landing, in hindsight he simply replaced the dot-com bubble with a housing bubble.

When the housing bubble eventually burst, the crisis was much worse than in 2000. When Lehman Brothers failed in September 2008, it seemed as if the whole financial infrastructure was in jeopardy. And Fed Chairman Ben Bernanke followed the same playbook: cut interest rates.

When near-zero-percent interest rates did not jump-start the economy, the Fed launched a series of “quantitative easing” (QE) programs, buying unprecedented amounts of Treasurys and mortgage-backed securities. The Fed has roughly quintupled its balance sheet, going from $905 billion in early September 2008 to almost $4.5 trillion today.

[...]

At its core, the market economy is a homeostatic mechanism that self-corrects by cleansing mistakes from the system. When policy makers—in the Fed or Congress—try to spare us from all pain, they cripple that mechanism and ironically make the system vulnerable to a major crash.

Basically, we had a housing bubble due to a number of bad incentives and a poor regulatory structure, which was then popped when the fed began tightening in 2007 which led to a consumption shock. The Fed didn't offset this consumption shock, tightened even more and then plunged the country into an even deeper recession. Falling nGDP probably made the issue with toxic mortgage debt in the financial system worse, and the banking system began to collapse.

Quote from: HurtfulTurkey on September 22, 2015, 09:08:18 AM

Quote from: Meta as Fuck on September 22, 2015, 08:52:48 AM

Basically, we had a housing bubble due to a number of bad incentives and a poor regulatory structure, which was then popped when the fed began tightening in 2007 which led to a consumption shock. The Fed didn't offset this consumption shock, tightened even more and then plunged the country into an even deeper recession. Falling nGDP probably made the issue with toxic mortgage debt in the financial system worse, and the banking system began to collapse.

This is not a very convincing defense of the Fed.

It's not supposed to be; almost all Recessions are due to mistakes in monetary policy. It's also the case that almost all Recessions are solved by monetary stimulus. Paul has no evidence for this "homeostatic" correction mechanism, and thinking that because the Fed fails quite substantially numerous times we'd be better off without it is a dangerous idea at best.

Quote from: HurtfulTurkey on September 22, 2015, 09:32:56 AM

I think he's going for the rationale that a free market will tend to correct problems naturally without government influence.

My point being very few economists agree with him, and the evidence for this is practically non-existent.

Hold up, does Paul actually believe in reverting to a gold standard?

Despite the stability of prices, however, Paul has gone even farther than some of his Republican colleagues, speaking approvingly of the gold standard. On the gold standard, a dollar was worth a fixed weight in gold, which at least ensured that the prices of other things wouldn't change much over the long term.

"We need to think about our currency that once upon a time had a link to a commodity, and I think we should study it," he said in 2013. He did not, however, advocate for a return to the gold standard, but only for a commission to study the idea.

Quote from: Chaos Metal Dragon on September 22, 2015, 10:55:54 AM

The republican party is like one big mental asylum

I'd argue that the democrats are even worse. Given that the front runner as of now seems to be Hillary "Female Nixon but worse" Clinton.

Quote from: Mmmmm Napalm on September 22, 2015, 03:15:58 PM

Quote from: Chaos Metal Dragon on September 22, 2015, 10:55:54 AM

The republican party is like one big mental asylum

I'd argue that the democrats are even worse. Given that the front runner as of now seems to be Hillary "Female Nixon but worse" Clinton.

Nixon was actually pretty good up until Watergate.