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Yes and I realize it might be considered being too picky but the problem was the loss of the irrational demand. In actuality the demand was never actually there.
I still want to know when interest rates rose though.
Oh demand was there it was just there from speculative flippers and banks who could now securitize and sell mortgages , and as such give them away like candy (they were demanding properties at the time).
As to interest rates they went up in the middle 2000s, not very high, but then they collapsed when the fed wanted to free up credit after the 2007 liquidity crisis.
Greenspan did the same thing that was done previously to stimulate the economy (1989-90, for example). Interest rates cut when economy is struggling, and increased as it recovers. And since economy saw an excellent job and wage growth beginning in mid-90s and continuing through 2000, the interest rate pretty much stayed put.
However, the economy had begun to slow down (the dot com bubble) but did not go into full fledged recession until February 2001. At that point, the economy had seen excellent job growth for several years, and household income reached a peak (which, BTW, hasn’t been beaten since). In other words, confidence in strong economy was high, even with slow down.
The fix to the slow-down was tax cuts, and interest rate cuts. While I could see some point to the former, I couldn’t see ANY reason for the latter since lending wasn’t affected. This is where lack of pragmatism in Greenspan showed. Or, perhaps, credit was seen as the only solution to prop up the economy, and that continued for a few years whereas job bleeding did not stop until late 2003. Promoting borrowing, when people were losing jobs, economy solely relying on borrowing AND house prices STILL rising soon found a new friend: Treasury Secretary decides it was time to relax the regulations on the five biggest financial players, to allow them to leverage at over 30:1. And they did.
This further promoted lending as, now, for each dollar at hand, these financial giants could risk $30 to $40 via lending. And housing prices continued to rise. However, it did help prop up the economy better than any of the previous actions, so interest rates could now be increased, but that also happened when the market had reached saturation and there were fewer suckers. Then, the bubble burst.
It is simple: because there is quick money to be made. I could argue that lowering capital gains promotes crony capitalism, and largely leading to last two recessions. It has little to do with interest rates actually.
You only see bump in rates when economy is sliding downwards. The rates are a trailing effect, not leading. It is why you see an increase in interest rates in 2005 or so, when people had started to feel good about the state of economy that had otherwise sucked for at least five.
Bolded is the problem. The Fed has no business trying to control the economy or re-inflating bubbles.
Oh demand was there it was just there from speculative flippers and banks who could now securitize and sell mortgages , and as such give them away like candy (they were demanding properties at the time).
As to interest rates they went up in the middle 2000s, not very high, but then they collapsed when the fed wanted to free up credit after the 2007 liquidity crisis.
Again, nit picking to a point but flippers and the banks do not a market make.
You just repeated something I already responded to. So, besides all that was already sent your way, has Greenspan explained what he would have preferred instead, and what the implications would have been? If you understood my previous post, you'd have noticed that I don't see a problem with Greenspan letting it be low for an extended period, but actually lowering it in the first place, when lending was not an issue! House prices were still rising. Lenders still lending. I would not take their word for it, instead ask this very question: why did you lower it in the first place?
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The government desired the money coming in so it didn't happen. It always ends up costing you one way or the other though.
Government's role is not to run like a business but as an agent for the nation to work towards the general welfare, which will include lessening, if not avoiding the blow to the citizens. This is also why regulations exist. This is also why government is not supposed to turn a blind eye and act indifferent when the society needs a disciplined approach towards recovery.
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Bolded is the problem. The Fed has no business trying to control the economy or re-inflating bubbles.
In the real world, someone will always have the responsibility. It so happens that we have chosen a bunch of banks to do it for us. That is, the real world where people choose to become a part of a society and deal with effects one way or the other.
You just repeated something I already responded to. So, besides all that was already sent your way, has Greenspan explained what he would have preferred instead, and what the implications would have been? If you understood my previous post, you'd have noticed that I don't see a problem with Greenspan letting it be low for an extended period, but actually lowering it in the first place, when lending was not an issue! House prices were still rising. Lenders still lending. I would not take their word for it, instead ask this very question: why did you lower it in the first place?
That would be to re-inflate the bubble. As you note, there was no huge pressing need for lowering rates.
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Government's role is not to run like a business but as an agent for the nation to work towards the general welfare, which will include lessening, if not avoiding the blow to the citizens. This is also why regulations exist. This is also why government is not supposed to turn a blind eye and act indifferent when the society needs a disciplined approach towards recovery.
The government right now does not know the definition of being disciplined. Regulations can exist outside of the idea of the government trying to control the economy. Regulations did exist but the government didn't like the direction of the economy so they removed them.
If they had remained in place, no Wall Street would not have been able to maintain year in year old record profits. No, things would not grow at the rate Wall Street finds acceptable. Yes, we would have had slow and steady. I see nothing wrong with that. Slow and steady does not allow for the government to create new program after new program though. So they feed Wall Streets interests and then Wall Street bites them in the ass.
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In the real world, someone will always have the responsibility. It so happens that we have chosen a bunch of banks to do it for us. That is, the real world where people choose to become a part of a society and deal with effects one way or the other.
We would do far better without the Fed's interference.
Again, nit picking to a point but flippers and the banks do not a market make.
Flippers and banks do a market make when banks will give a loan on anyone with a pulse (no matter how leveraged they are) and Flippers will borrow to buy any shack in South Florida with a "for sale" sign at any price the seller asks.
yes we should spend within our means, but the question really had to do with the federal government of which the people these days have little control over.
by the way i got ten out of ten.
I tried to be too cute on that last question and ended up with nine out of ten.
While only Congress can control the spending input of national debt, it's also important for consumers to live within their means.
If both spend within their means, consumer demand for debt falls, facilitating lower interest rates and cheaper/faster repayment of government debt.
Whoever wrote the questions was also trying to be too cute...we should care about inflation because tire pressure affects gas mileage???
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