Over some amount of recent posts I’ve been talking about various aspects of blame for the Great Recession. Some from memory, some from graphs, some from conjecture, some from facts. But overall, most of it comes from a belief that the buck has to stop somewhere.
Yes, banks made gambles and lost.
Yes, from 2006 on GW Bush nominated and the Senate confirmed a bunch of people for the Federal Reserve BoG who cared only about one thing – headline inflation
Yes, the focus on that one thing lead to mistakes: the base remaining flat while the demand for liquidity soared and the lender of last resort function increased, IoER after the Fed was projected to run out of assets to sell; the FF rate staying flat as NGDP plunged
And there were complications:
The misconception that low interest rates means easy money
Bad models, bad guesses, bad attitudes. Dodging and weaving.
But if policymakers only care about one thing, headline inflation, the misconceptions, models, guesses and attitudes don’t really mean anything. Do they? Because the results are what they are and the impact is what it is – and it’s all supposed to be good.
None of it really means anything because of marginal utility and the depth of perception that many people in the government at the time had. Mega-billionaires can lose billions and their standard of living doesn’t really change that much. The people who took the brunt of the hardship resulting from the mistakes of focus on that one thing have much less to lose, just in the 100’s of thousands or even some just in the 10’s of thousands of expected income before hardship is apparent. But big government types don’t hang around with THOSE people.
And so, it doesn’t mean much to anyone who seems important, if anyone important notices, except to harp on education because those people experiencing hardship (unimaginable because nobody else is in a relative sense) must be ignorant and/or just naturally unlucky anyway; or they used their homes as ATMs and used the money to take vacations or bought jewelry, or whatever unaffordable extravagance can be imagined. Because we’re just really ignorant and stupid like that.
Never mind that many of those people are small business owners who accessed the capital markets, taking loans out on their property in order to set up shop; or some did so to pay for a kid to go to college, or some other worthwhile at the time endeavor to take a risk at being better than they were. Things that people do take loans out on their homes for – because they’re aren’t, err em, rich but still have dreams. And they did so unknowing that monetary policy would change, that the base would stop growing as energy prices soared; unknowing that monetary policymakers would save the banks at their expense within the flatness of the base, and throw the baby out with the bathwater because of a bad inflation forecast.
The inflationistas and the people scared to death by the bad inflation forecast just couldn’t be wrong. So if a bunch of people got wiped out it was because they were stupid and made bad investments, or so we’ve been told; and all they really need is to be educated. Not everyone was losing everything. Some people barely noticed.
We didn’t need QE. We didn’t need it because it lets politicians spend money the government doesn’t have. We didn’t need it because prices adjust. We didn’t need it because inflation is bad for the people the policymakers and politicians pal-around with every day. We didn’t need it because it’s charity for stupid and ignorant people who can’t help themselves but be stupid and ignorant with money; and they’ll just jack up commodity prices with it, buying things they can’t sell to the important people who should get first dibs anyway because they have more important things to do with them.
What do farmers and simpletons need with banknotes?
There are no villains – only simpletons who make terrible choices.
PS: The road to hell is paved with good intentions.