binve (< 20)

The FED knew about the impending housing bust

January 14, 2011 – Comments (5)

Excellent post by Pragcap. Right now everybody is in love with the Fed because of the psychological impact that QE2 is having on the market. But the FED knows how destructive these policies are (they know that the risks increase far more than the benefits => benefits are temporary). Not only from empirical evidence, but also by internal analysis and discussions on the topic.

I am not saying that the market is going to crash here (like I have said before recently, I think we are getting a pullback soon, but I am in the camp that think that higher prices are coming into mid 2011). But what I am saying is that there are dubious beneficial real and sustainable postive economic impacts with policies like this. And markets may love these policies in the short term, the longer term impacts are significantly more negative.

Post from PragCap

Federal Reserve Document

I like this paragraph by TPC:

You can review the entire document here.  It’s full of various presentations and evidence showing that the Fed knew there was a bubble and still did not take the proper risk management measures to try to alleviate the problems.  What’s even more worrisome is that the Fed openly acknowledges that these sorts of events can lead to catastrophic economic outcomes, yet here we are implementing another policy of “keeping asset prices higher than they otherwise would be”.  Do these people never learn?

That is to say, we are making the same mistakes ... again. Right now.