Yesterday morning’s comments (Random Thoughts: Recent Trading/Market Activity) began with this bullet point:

“This entire crisis traces itself back in large part to then FOMC chair Alan Greenspan not allowing markets and the economy to flush themselves clean after the dot com collapse. It seems that nearly every Fed/Government policy action has been a response to the problems that error led to.”

Quite a few people responded, seeking clarification, and so I wanted to briefly address this issue.

The Federal Reserve (unlike most other central banks) has a dual mandate: Maintain full employment and keep inflation at bay. History informs us that these two factors are often opposed to each other: Growth begets price rises, and excessive price elevation retards growth.

Hence, for the Fed to do its job well, they have a neat balancing trick to perform.

We can trace the origin of the current Fed situation to a drift away from those two mandates. This occurred sometime in the 1990s, when then FOMC chair Alan Greenspan somehow began focusing on markets, asset pricing and a nonsensical catchall “investor confidence.”

It wasn’t long after that when traders deduced that the Greenspan was their bitch. It soon became apparent that at the first sign of trouble, the Fed stood ready to flood the system with liquidity. In just 4 short years, markets saw the Fed respond massively to the Asian Contagion (1997), Russian bond default, Long Term Capital Management Collapse (1998), Y2K bug (1999), Dot Com implosion (2000), 9/11 (2001).

There was no small irony in that Greenspan, Mr. Free Market himself, had become Mr. Centrally Planned Economy. This was not lost on the Wall Street community, whose jobs were to figure our where the best and most lucrative opportunity lay. Liquidity driven asset prices was the answer to that question.

Following the Y2K cash infusion on October 22, 1999, the Nasdaq doubled from 2500 to 5100 over the next 6 months. The 78% collapse it suffered overstates what should have been a more typical 50% crash (lets call it 2500 down to 1250) had the Fed intervention not occurred.

With the Fed Funds rate at 6% in late 2000, the Fed began slashing rates in January 2001. They made 8 rate moves between January and August 2001, cutting rates in half to 3%. Note this was all prior to 9/11. I believe Greenspan panicked, taking rates all the way down to 1.25% following the attacks.

At the time, it was unprecedented to have rates below 2% for three years, and at 1% for a year.

The net results of this action were enormous. Bond managers scrambled for yield, ultimately finding AAA rated mortgage backed junk product. The dollar plummeted 41% over the next 7 years. Anything priced in dollars skyrocketed, and inflation went screaming higher. Housing took off, loan standards collapsed, credit quality suffered.

There were many other factors involved: Radical deregulation, Globalization, diminishing incomes, labor restructuring.

But imagine what might have been if the 1990s/early 2000s Fed had been more circumspect. If you bought Russian bonds, and they defaulted, you were supposed to lose your money. Bought into a bad hedge fund that blew up? You took the hit! The DotCom collapse should have led to a flushing out recession and market crash that took a few years to recover from.

Instead, the Fed gave us a hair of the dog that bit us: More cheap money, and another liquidity driven rally.

Many of the subsequent ills this economy has suffered through derive from those decisions a decade or more ago. They have certainly been compounded by a variety of other really bad calls. But much of this traces itself back to the Greenspan Fed.

There is a reason I noted How easy money corrupted Wall Street and shook the world economy — it was a prime spark to the conflagration. Had we had a more normalized Fed policy, much of what took place in the 2000s very well would have gone down quite differently. We would likely have had a deeper, more painful recession, but we would have been on the path to recovery today.

Instead, we are like the late night reveler who forestalls the hangover by having another drink. And another. And another until we discover that we are alcoholics.

Hence, yesterday’s Fed announcement is the product of these earlier errors. The Fed cannot raise rates, lest they cause another recession. And the Fed cannot keep rates here, lest they admit their own policy failures, debase the currency further, and send oil over $100 and gold towards $2500.

They are boxed in. And they have no one to blame but themselves . . .

Category: Bailout Nation, Bailouts, Federal Reserve, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “How the Fed Got Itself Boxed In”

  1. call me ahab says:

    “We can trace the origin of the current Fed situation to a drift away from those two mandates. This occurred sometime in the 1990s, when then FOMC chair Alan Greenspan somehow began focusing on markets, asset pricing and a nonsensical catchall “investor confidence.”

    no doubt, no doubt . . .an excellent observation,

    and the Fed and the markets became joined at the hip evermore

  2. Greg0658 says:

    this box is open I’ll comment .. was it “I’ll give them central planning till their sick of it” .. Randianism anti government .. and a collection of incorporations who control uncentrally

    hows that working out ? united in free markets ?

  3. Rouleur says:

    …well, that pretty much sums it up in a nutshell

  4. albnyc says:

    Mr. Market wanted a new drug and scored from Dr. Ben.

  5. fjm159 says:

    This was sent to me yesterday by a friend. The origin is unknown. It explains our basic debt situation quite well. The U.S. Congress sets a federal budget
    every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms.
    Let’s put the 2011 federal budget into perspective:

    U.S. income: $2,170,000,000,000
    Federal budget: $3,820,000,000,000
    New debt: $1,650,000,000,000
    National debt: $14,271,000,000,000
    Recent budget cut $38,500,000,000 (about 1 percent of the budget)

    It helps to think about these numbers in terms that we can relate to. So let’s remove the eight zeros from these numbers and pretend
    this is the household budget for the fictitious next door Jones family.

    Jones Income: $21,700
    Jones spends: $38,200
    New credit card debt: $16,500
    credit card balance: $142,710
    Recent budge cut: $385

    So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget.
    Cut $385 of spending in order to solve their $16,500 in deficit spending?

    Will this work?

  6. theexpertisin says:

    A good “Cliff’s Notes”-style post of the Feds behavior.

    Perhaps an even more abridged summary is appropriate at this juncture: We’re screwed.

  7. bulfinch says:

    A great post by someone unencumbered enough to tell Uncle Sam that his breath stinks.

    This combined with Ratigan venting spleen yesterday makes me feel more upbeat somehow…we need more asskickers!

  8. wally says:

    Consistent with this thinking, media yesterday and today is reporting that the Fed has ‘pledged’ to keep rates under .25 until 2013. I’ve read and re-read their statement and – having read and spoken the English language for six decades – cannot read the Fed statement in that way.
    People see what they wish, I guess.

  9. ashpelham2 says:

    I agree completely with the initial statements, Mr. Ritholtz. This is an easy problem to see, but a real mess to fix. Why no one is talking in these terms in the MSM or on other blogs, is a mystery to me. It seems like everyone has just turned off their thinking caps, and decided that we are going down with the ship. Ratigan notwithstanding yesterday. The Fed no longer can do it’s job, if it is just going to sign off on a ZIRP every time it meets. Most Americans cannot see the repusrcussions of this in their own lives, but a simple savings account, with 500-600 bucks in it should be the evidence that they need. Traditional savers are penalized by this policy, and excessive risk taking is encouraged. My industry, the retirement plan business, is part and parcel to this excessive risk taking.

    When Bush II (otherwise known as nuclear winter) was in office, he wanted to privatize Social Security. I cannot imagine how much larger our problems would be if that had happened. Imagine how the risk taking would have expanded had Americans been charged with investing their social security savings!
    Thank you for putting these thoughts to paper, and providing an outlet for those of us who see THE BIG PICTURE to be able to editorialize it ourselves.

  10. machinehead says:

    ‘ … traders deduced that the Greenspan was their bitch.’

    Touché!

    A mighty ugly one, though. Best to do him with a sack over his hideous mug.

  11. Silversem says:

    Gold will go to 2500 anyway. No matter what the fed does.

  12. KidDynamite says:

    great piece, Barry. I think part of the problem is that we had an abundance of “too big to fail” even back in 1998 – which became “absolutely too big to fail” this time around as a result of the compounded “bailouts” from easy money policy which, as you noted, made the monster bigger.

  13. Fred C Dobbs says:

    This summary is very, very good. If rates had been higher, say 5%, speculation, the risk of making more money on borrowed money than the borrowed money costs, would have been less, it being far more unlikely in those ‘deflating’ asset prices periods speculative investment on borrowed money would actually generate profit during the term of the loan.

    Characterizing the Fed as ‘boxed in’ by its own actions, may well apply to Congress as well. Congressional spending on borrowed money for defense, agriculture, and entitlements, for example, have created a false impression about the real US economy.

    Neither the Fed nor Congress can do something without making matters worse, so they individually do nothing, in order to escape being blamed for the debacle to come.

    There is little evidence to support a belief that a capitalist system, more or less based on merit, can support a socialist system based on ‘need’ and ‘social justice’ for long periods of time. Sooner or later, the non-productive parts have to be side-lined, and the system re-built on the basis of productive merit. Rebuilding begins when one generation repudiates the debts incurred by its predecessors.

  14. Petey Wheatstraw says:

    MEH:

    Good links, as usual. Thanks.

    It’s frustrating that people don’t know this. Maddening that they don’t seem to care.

  15. efrltd says:

    Not a particularly insightful piece on monetary policy for it assumes the Fed ever could do much more than peg its own rate at the discount window. To rig the interest rate it was even less successful. And to reach a target of full employment it was pushing on a string. As an economist having been more than just an observant student for over forty years, I recall the ineffectiveness became more and more evident and the Greenspan Fed was simply grasping for some new measure to mark its effect. And the availability of credit became much wider than just the banking sector the Fed could affect. The availability of many credit sources, and the insatiable appetite for credit by borrowers, moved, or was moved beyond, the Fed’s arms length. Much of the current crises arise, like than of prior eras, from borrowers inability to measure their own means to carry leverage.

  16. Bushman says:

    You painted the picture very nicely, Barry. It’s very easy to see in retrospect how it all ties together – and how it affects the big picture going forward. My thoughts are the longer the Fed “tries” to prop up our economy rather than letting it flush itself, the worse the impact of the actual flushing – could be quick & catastrophic or could be a (more) prolonged, bleak-growth period. I am for ripping the bandaid off quickly and moving on — no doubt it hurts, but recovery can occur more quickly.

    And I do like FJM159′s post – good analogy.

  17. carleric says:

    A good summation of Bill Fleckenstein’s book “The Greenspan Bubbles, The Age of Ignorance at the Federal Reserve”. I well remember how investors worshipped at the feet of the “Maestro”. How did that work out? And I was appalled this morning when commentator after commentator was imploring the Fed or Governeent to do someting to “save us, save us”. The rule should be if you make a bad investment, you lose money. That rule was discarded by Bernanke when he bailed out Golman Sachs from the AIG mess.

    ~~~

    BR: And of course, Fleck wrote the forward to Bailout Nation as well

  18. econimonium says:

    fjm195 keep repeating this until you believe it: the Federal Government’s Budget process is NOT like a households!!! This is Fox News crap analysis and is like saying that the Federal Reserve works like my checkbook. Please don’t post this stuff unless you want to be laughed at in a way you richly deserve.

    And, furthermore, take an economics class. Preferably a graduate level one, or even one from an MBA program. Then you can learn how the budgeting process REALLY works, how numbers are arrived at, alternative ways of deriving them (that essentially never differ enough to be meaningful as with unemployment or GDP unless you make a lot of faith-based assumptions), and how these all fit into the current GLOBAL environment considering nothing the US does is bounded by its borders any more.

    Either that or go back to watching Fox and drooling like the lower 30% of the population.

  19. beaufou says:

    The global consensus is that a roaring stock market is the sign of a healthy economy despite universal societal decay.
    Free breakfast, lunch and dinner for masters of the universe is widely accepted while any kind of social program is branded a free lunch for dead-beats, the average citizen even buys into it, somehow thinking he has a fair chance of joining the other team.

  20. Petey Wheatstraw says:

    Fred C Dobbs Says:

    “There is little evidence to support a belief that a capitalist system, more or less based on merit, can support a socialist system based on ‘need’ and ‘social justice’ for long periods of time. Sooner or later, the non-productive parts have to be side-lined, and the system re-built on the basis of productive merit. Rebuilding begins when one generation repudiates the debts incurred by its predecessors.”
    _________

    This is where, IMO, your thinking goes off track.

    There is little evidence to support the idea that we have a capitalist system. What we do have is already not based on merit (it’s more accurately described as being based on cronyism). Since conservative ideology took over, politically, there is little that has happened that could be described as serving “needs” or “social justice” (unless you count the gifting of the vast majority of our nation’s wealth to the “needy” top 1% as being socially just).

    I remember when Saint Ronnie freed all of the mental patients so that they could sleep, as free people, on the grates of our cities

    So much for your “social justice” is dragging us down:

    http://www.sociology.org/content/vol003.004/thomas.html

    and,

    http://www.miwatch.org/2011/02/_ronald_reagan_and_mental.html

    I do agree that the non-productive parts of our economy need to be sidelined. That would include the military-industrial complex, the pseudo-governmental banks, the insurance industry, the Bar association/court system complex, and a host of subsidized and licensed (as in oil fields, timberlands, and airwaves) industries.

    As for “productive merit,” it’s pretty difficult, given our economic structure, for the average person to participate in the economy on a freelance basis. They need jobs. Since the Reagan administration, those I assume you refer to as having “productive merit,” have promised jobs and prosperity, if only we would release the shackles of taxation and allow them to bestow their riches on society.

    Anyone still buying or selling that as a solution to — as opposed to the cause of — our economic problems is ignoring at least 30 years of history.

  21. Petey,

    from the “that they don’t seem to care”-’Files’ ..

    see some of..

    http://dont-tread-on.me/learning-old-lessons/

    “I have never seen more Senators express discontent with their jobs….I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected.”

    - John Danforth, Senator (R-MO), Arizona Republic, April 22, 1992.

    ________________________________________________________________________________________

    “The Trilateral Commission is intended to be the vehicle for multinational consolidation of the commercial and banking interests by seizing control of the political government of the United States. The Trilateral Commission represents a skillful, coordinated effort to seize control and consolidate the four centers of power–Political, monetary, intellectual, and ecclesiastical.”

    - Barry Goldwater (1909-1998), Senator (R-AZ), Republican Party’s nominee for President in the 1964 election, “Mr. Conservative”, No Apologies, 1964.

    The Trilateral Commission was founded in July of 1973 at the initiative of David Rockefeller, who was Chairman of the Council on Foreign Relations (CFR) at that time. The Trilateral Commission is widely seen as an off-shoot of the CFR.

    ________________________________________________________________________________________

    “When the President signs this act [Federal Reserve Act of 1913], the invisible government by the money power — proven to exist by the Monetary Trust Investigation — will be legalized. The new law will create inflation whenever the trusts want inflation. From now on, depressions will be scientifically created.”

    - Charles A. Lindbergh, Sr. (1859-1924), Congressman (R-MN), father of famous aviator, Senate, Nov. 1912.

    ________________________________________________________________________________________

    “Government spending is always a “tax” burden on the American people and is never equally or fairly distributed. The poor and low-middle income workers always suffer the most from the deceitful tax of inflation and borrowing.”

    - Rep. Ron Paul, MD (R-TX), “We’ve Been Neo-Conned”

    ________________________________________________________________________________________

    “The financial system has been turned over to the Federal Reserve Board. That Board as ministers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.”

    - Charles A. Lindbergh, Sr. (1859-1924), Congressman (R-MN), father of famous aviator, Senate, 1923.

    http://www.thenorthwestreport.com/federal-reserve-bank-quotes-the-central-bank-fraud/

    just, don’t let it ‘madden’ you, that, is not ‘worth it’ ..

    http://www.thefreedictionary.com/madden ref. #2

  22. Petey Wheatstraw says:

    MEH:

    Politics is the false-front of the Banking/Corporatist cartel.

    At some point, when weighing the evidence for and against, a rational and open-minded person must accept that this is not a conspiracy theory. It’s not even a conspiracy. It’s a full-blown continuing criminal enterprise.

  23. Petey,

    when..”“In March, 1915, the J.P. Morgan interests, the steel, shipbuilding, and powder interest, and their subsidiary organizations, got together 12 men high up in the newspaper world and employed them to select the most influential newspapers in the United States and sufficient number of them to control generally the policy of the daily press…They found it was only necessary to purchase the control of 25 of the greatest papers. An agreement was reached; the policy of the papers was bought, to be paid for by the month; an editor was furnished for each paper to properly supervise and edit information regarding the questions of preparedness, militarism, financial policies, and other things of national and international nature considered vital to the interests of the purchasers.”

    - Oscar Callaway (1872-1947), Congressman (TX), Congressional Record of February 9, 1917, entered by Representative Oscar Callaway, p. 2,947.

    the easier to…

    “The money power denounces, as public enemies, all who question its methods or throw light upon its crimes.”

    - William Jennings Bryan (1860-1925), Congressman (D-NE), US Secretary of State (1913-1915) under President Woodrow Wilson, Democratic Party nominee for President 1896, 1900, and 1908.

    and Hide…

    “The fact is that there is a serious danger of this country becoming a Pluto-democracy; that is, a sham republic with the real government in the hands of a small clique of enormously wealthy men, who speak through their money, and whose influence, even today, radiates to every corner of the United States.”

    - William McAdoo (1863-1941), US Senator (D-CA), Secretary of Treasury, President Wilson’s national campaign vice-chairman, Crowded Years, 1974.

    “Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.”

    - Daniel Webster (1782-1852), Senator (MA) (NH), Secretary of State, a notable orator and leading constitutional lawyer.

    “We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.”

    - Daniel Webster (1782-1852), Senator (MA) (NH), Secretary of State, a notable orator and leading constitutional lawyer, speech in the Senate, 1833.

    “It is no coincidence that the century of total war coincided with the century of central banking.”

    “The Federal Reserve System must be challenged. Ultimately, it needs to be eliminated. The government cannot and should not be trusted with a monopoly on money. No single institution in society should have power this immense. In fact, I believe that freedom itself is at stake in this struggle.”

    - Rep. Ron Paul, MD (R-TX), End the Fed

    “The obligations of our representatives in Washington are to protect our liberty, not coddle the world, precipitating no-win wars, while bringing bankruptcy and economic turmoil to our people.”

    - Rep. Ron Paul, MD (R-TX), Freedom Under Siege

    ________________________________________________________________________________________

    “The Federal Reserve bank buys government bonds without one penny…”

    - Wright Patman, Congressman (D-TX), Congressional Record, Sept 30, 1941.

    http://www.thenorthwestreport.com/federal-reserve-bank-quotes-the-central-bank-fraud/

    and, obviously, more…

  24. sangfroid says:

    Barry,
    Great post. Since the unfolding of the credit crisis you have been consistent in your message of Greenspan’s culpability, and I personally think he’s the biggest criminal in the monetary history of US. I can’t stand hearing his voice or seeing him on TV. While tolerance is good but it has fostered a culture of shameless un-accountability in our politicians…. Don’t let revisionists erase the truth !

  25. SCTTD says:

    “They are boxed in. And they have no one to blame but themselves . . .”

    Unfortunately we know EXACTLY who to blame and there ain’t nothing we can do about it. Social acrimony, what social acrimony….

    We allowed the rise of a politcal class instead of the citizen legislators that exit at least until after the Civil War. They voted themselves raises, pensions, health care and all sorts of goodies all the while trying to convince us they were looking out for average America. Greed at it’s absolute Zenith all while we slept being fat dumb and lazy. Mostly lazy.

    And so, in the end, we have no one to blame but ourselves…

  26. yuan says:

    “inflation went screaming higher”

    a temporary blip is not screaming higher:

    http://www.fintrend.com/inflation/Inflation/DecadeInflation.asp

  27. brianinla says:

    Wow, econimonium, a graduate level economics class? Would you ever acknowledge it was a waste of time and money? It’s as faith-based as seminary school.

  28. DMR says:

    @fjm159,

    Here is where the analogy to the Jones household ends: If Jones refused to increase his income and maintained that the only option is to earn the lowest income possible, sometimes even making the dramatic claim that he will make his income small enough to drown in his own bathtub, what would happen?

    My guess is that the soon to be ex-Mrs. Jones will take her professional income (the one that Mr. Jones wants to mooch off of) off with her to seek a better future. She has been eyeing the dark and handsome Brazilian-Indian-Chinese single dad across the street who spends his money on giving his kids the best education and planted trees in front of his house to improve the neighborhood. Mr. Jones will have to watch from his barricaded bunker with gun by his side, eating his canned soup as the new kid in the block makes away with the life he thought he was entitled to.

  29. DMR says:

    Hey BR, I think I spooked the spam filter.

  30. theexpertisin says:

    Commentator econimonium at 10:16 attempts scarcasm and insult by using a terribly stale and mindless rant (Fox News, et al)to put down another commentator’s reasonable contribution to this thread.

    A bit too much moveon.org, media matters and Dail Koz has evidently turned his/her thought process into muddled, raving mush without either a valid point or any other thought-provoking, worthwhile utterance. It reminds me of shout outs on a third-rate fantasy football league draft.

  31. mddwave says:

    With the United States Dollar as the reserve currency, the Federal Reserve “box” is worldwide.

  32. mamacass says:

    WHY can’t the ‘bitch’ be prosecuted for all his crimes? Anybody else would be. He is a criminal and I cannot imagine why he keeps appearing on tv. Who wants to listen to him? We all know what he has done! He must feel no quilt about any of it. He was helping the fat cats while average working people suffered. He picked up his philosophy of greed and ‘rich is better’ from Ayn Rand herself!!

  33. dsawy says:

    I maintain that LTCM in ’98 was the turning point. What the Fed did thereafter was clearly target asset prices and respond to large investment bank concerns. This is the point where the Fed decided that there were banks that were “too big to fail.”

  34. DeDude says:

    @theexpertisin;

    You complain about sarcasm and insult in a posting full of what ?

    Am I to take you serious or is that really the best you can do regarding making “a valid point or any other thought-provoking, worthwhile utterance” ???

    I know it is hard to make a rational fact-based argument against the points econimonium made; but then you could just ignore it.

  35. Zenster says:

    I read Hussman’s Weekly Market Commentary this morning. http://tinyurl.com/3wopn5t Barry & John are on the same page as to what caused the domestic quicksand we are in which thrashing about. Besides supporting Barry’s comments, Hussman also included two other important items.

    1. “… the composite of economic and financial evidence we presently observe has always and only been associated with ongoing or immediately impending recessions. This is not an opinion or a viewpoint, but a fact of the data. “Always and only” is the Bayesian equivalent of “certainty” (a Bayesian is someone who, vaguely expecting a horse, and glimpsing the tail of a donkey, concludes he has probably seen a mule).”

    2. John reiterated his idea of restructuring mortgage debt by employing ‘property appreciation rights’ so that “..the credit strains and uncertainty in the housing market could be addressed, foreclosures could be averted, the markets could clear, and the economy could move forward.” This proposal continues to appeal to me as one policy tool with a reasonable chance of addressing one of our major problems.

  36. DiggidyDan says:

    Dang filter doesn’t like the word p/r/o/p/a/g/a/n/d/a apperently (or maybe it was the words Mayor and Q
    uimby?)

  37. DiggidyDan says:

    Fjm. . . Apples and oranges bro.

    First off, the United States is borrowing the cash at record low interest rates, and in comtrol of a fiat currency they can inflate the paper to pay it back before the maturity of the debt. Additionally, this currency happens to be the world reserve currency, and the majority of our creditors our dependent upon our continued debt at the moment so we buy what they’re selling and they can feed their families.

    Your household budget analogy assumes the jones are borring at credit card interest rates for revolving debt that has no maturation period. . . Also, quite obviously, the jones do not have the ability to alter the worth of the fiat currency used to pay back the debt, nor do they have the ability to just vote themselves more income via taxes down the road.

    As much as I hate the deficit, wasteful spending, inefficiency, and courruption of our our government as well as the stupidity of the electorate to consistently vote against taxing the rich, and for ridiculous spending at their own detriment, I must say your argument is fairytale prop-aganda, and rather disengenuous and/or illinformed to boot.

    No attack against you, I just hope any reading this would take this into account instead of reading that analogy on this blog and thinking it is valid. (this post is written in invisible mayor quimby ink. . . Please do not respond!)

  38. DiggidyDan says:

    Borrowing at credit card rates. . . Dumbfone proofreading

  39. Definitely an informative piece in matters regarding why Alan Greenspan should be sharing a cell with Bernie Madoff. Yet the dismantling of the physical economy occurring during the Age of Greenspan defies assumptions you make had this wing nut not been Fed chairman. Rather, what economic carnage fast approaching as the trans-Atlantic banking system collapses — extreme disruption of life as we know it — would have been inevitably reached with or without Greenspan. That economic dislocation’s depths might be more rapidly reached — this on account of a once balanced, productive, export-oriented physical economy’s dismantling over the past forty years — leaves one wondering whether Greenspan, in fact, might be thanked for staging the fast-approaching, cold, hard slap in the face begging Americans to act as such, rather than empiricist monetarists who could not tell a casino from a power plant.

  40. [...] How the Fed Got Itself Boxed In — fantastic article that gives light to our current situation.   Even this week you could hear traders/investors complaining about the lack of Fed intervention into the crash.   We expect the Fed now to get us out of trouble everytime the market crashes, and that mentality is problematic.  Read the excellent post. [...]

  41. [...] Ritholtz had a great explanation of How the Fed Got Itself Boxed In. This basically goes along with my previously stated thesis that the Fed (under both Greenspan and [...]