In sports, all great competitors know that they have a choice, even when confronted with daunting, insurmountable odds. They can lay down and let the larger, stronger opponent run up the score. Or they can find a way to compete, to make a game of it. A good loss is a dignified way to show what you are made of, that you have grit, attitude and brass, and you aren’t to be trifled with, even in defeat

The financial crisis delivered a significant blow to the economic well-being of the U. S,, indeed, the world. There were two responses to this challenge, one of a great competitor, and one of a pathetic loser. The response to the threat of overwhelming defeat is instructive, not only for its policy implications, but for how we as individuals should respond challenges that seem hopeless.

Consider the policy makers of the Federal Reserve, terrified as they were of the entire system collapsing. Regardless of your views of the impact of the Fed — and I was an early critic — one must grudgingly admire they’re determined and innovative responses. Consider not what they did but their attitude and creativity when confronted with what appeared to be an insurmountable challenge: They stepped up their game big time. If they were going to lose this battle, they were going to go down fighting.

They threw away the rule book. The new liquidity facilities were certainly never envisioned 100 years ago on Jekyll Island, where the Fed was born. But that didn’t stop them.

There are no mercy rules in economics. The Fed knew this, and rather than let the clock run out — a few decades of indecisive dithering probably would allow the excesses to be wrung out eventually — took a bold stand.   Continues here

 

 

 

 

Category: Investing, Really, really bad calls, Taxes and Policy

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.

7 Responses to “Our Self-Inflicted Economic Wounds”

  1. Concerned Neighbour says:

    Spot on BR. Both parties have behaved badly, but the Republican/Tea Party have by far put up the most obstacles to stimulative fiscal policy. As much as I dislike current Fed policy and think most will come to regret it, they did step into the breach at the height of the crisis and prevent a much worse outcome from developing. They deserve credit for that.

    As the deficit continues to close, a smart government would take advantage of historically low rates to make productive investments in infrastructure and 21st century institutions. Alas, we all know that won’t happen. It doesn’t help that the President seems to have thrown in the towel, but I have a hard time blaming him given the blatant obstructionism he’s had to deal with.

  2. rd says:

    I think a major agenda item that has been largely overlooked, but has played a major role in the lack of debate on the transportation bill is the focus of a significant number of the Republicans currently in Congress on reducing federal expenditures with the expectation that they will then be picked up by the states as the states see fit.

    Two things stand out to me on this:

    1. Many of the Republicans are representing states that receive more Federal funds than they pay in federal taxes. Their states will have to increase their taxes more than the potential reduction in federal taxes. I don’t think their constituents have the slightest inkling of this as the rhetoric is always lambasting the wasteful blue states.

    2. Many states have balanced budget amendments. That tends to make state and local spending pro-cyclical like in the past decade whereas the federal government can be a counter-cyclical flywheel to help maintain an even keel economy. I think many of these people’s proposed solutions will return us to the rapid boom-bust series of crashes and rebounds that we saw in the late 1800s and the early 1900s. I don’t think their constituents will be happy with that either.

  3. noncist says:

    Bravo! I couldn’t agree more.

  4. S Brennan says:

    I like this post, but I blame the idiocy of our current “Peace Prize Prez” alongside the GOP in equal measure.

    Just yesterday, I had [3] FBook friends bragging that Obama had significantly cut the deficit during the Great Recession. The fact of the matter is, Obama either knowingly, or unknowingly provided cover for his opponents destructive right wing policies. Either the cipher named Obama is a “cloaked” right winger, or an idiot of unparalleled proportions. One thing is for sure in that dichotomy, Obama’s “dead-end” supporters are the most clueless of voters.

  5. IanMud says:

    For the Republicans it seems to have been all about the narrative. When Obama came into office and pushed through the middle class tax cuts the “tax” part of “tax and spend liberal” was eliminated, leaving only the “spend” meme. No surprise, then, that their political strategy was to embrace austerity without consideration for its consequences (knowing that the President and his party takes the blame for a poor economy). Ain’t politics wonderful?

    • bigsteve says:

      Could not agree more Mr. Ritholtz . I am a moderate Republican who has voted independent, mainly Democrat recently since the election of Obama. I voted McCain when he ran but the ensuing GOP obstruction has disgusted me since then.The only reason I have not change my political affiliation to independent is because Florida is a close primary state. In my gerrymander district the primary is the only election that counts for legislators both state and nationally. If the GOP does not reach out to minorities they will become a regional party that nationally will remain in permanent minority status. Short term gaming the system by things like gerrymandering long term is going to hurt them badly.

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