March 3, 2017

IT'S A DEFLATIONARY EPOCH:

When the Fed screws up, recessions follow (Christopher Matthews, 3/03/17, Axios))

Early 80s: These two recessions were triggered by Fed Chair Paul Volcker's extreme interest-rate increases aimed at taming one of the worst bouts of inflation in modern American history.

Early 90s: Fed funds rates were also rising in the months leading up to the recession; but one can also argue the culprit was the runup in oil prices that resulted from the Gulf War, sapping spending power and consumer confidence.

Early aughts: The Federal Reserve began raising rates as the dot com bubble expanded during the late nineties, and raised rates steadily from the winter of 1999 through the fall of 2000 in an attempt to cool an overheating economy. By March 2001, the economy was in recession.

The Great Recession: The housing bubble was certainly a culprit of the 2008-2009 recession, but many blame the Federal Reserve as well. Bush Administration monetary economist Scott Sumner thinks the Fed should have moved much more quickly to lower interest rates in the months leading up to the recession, and could have possibly avoided the recession altogether if they had.

Once Volcker, Thatcher and Reagan broke inflation in the early '80's, the subsequent hikes have been into the teeth of deflation, which is always disastrous.  Of course, the economy is so strong and the rate hikes so nakedly political, rather than ideological, that the Fed has been able to bail immediately and only the 2008 recession may be measured as one eventually. And even that would have been avoided had the House GOP not rebelled against the Bush bailout.

Posted by at March 3, 2017 12:11 PM

  

« NO SUCH THING AS QUALITY: | Main | WE ARE ALL DESIGNIST NOW: »