By Joseph E. Gagnon
Today, we’re fortunate to have Joe Gagnon, senior fellow at the Peterson Institute for International Economics, as a guest contributor.
In his speech at the American Economic Association yesterday, Ben Bernanke said that monetary policy played at most a small role in the U.S. housing bubble and that financial regulatory policy is the appropriate tool for preventing harmful asset price bubbles in the future. I agree with these conclusions, but I suspect that many do not, even within the world of central banking.
Brad DeLong recently described the dilemma about bubbles that some central bankers may believe they face. On his weblog, DeLong presents a simple model of a bubble caused by a central bank that holds the short-term interest rate below its long-run equilibrium in order to offset a shortfall in aggregate demand, i.e., to fight a recession. This bubble is caused by the “carry trade.” Speculators borrow at the low short-term interest rate to purchase a long-term asset at a price above its long-run expected value. They know that the asset price will fall when the central bank raises the interest rate at some future date, but in the meantime they can earn income above their cost of borrowing (this excess income is known as the “carry”).
If speculators correctly evaluate these costs and benefits, their expected carry will equal the expected fall in the asset price and there is in fact no bubble. Another way of saying the same thing from the point of view of an unleveraged investor is that the expected returns to holding either the high-priced long-term asset or a short-term deposit or T-bill are the same. Indeed, by lowering the short-term interest rate, the central bank intentionally raises the fundamental value of the long-term asset in order to stimulate private spending.
However, if speculators incorrectly assume that they are smart enough to sell before the price of the long-term asset falls, or if they believe that the government may bail them out when the asset price falls, then there will be a bubble — the asset price will rise too high. DeLong assumes that the bursting bubble causes a decline in social welfare equal to any bailout plus an amount proportional to the squared losses of the speculators.
DeLong’s model cleverly captures many key features of an asset bubble and yet remains simple enough to draw clear conclusions. He shows that overconfidence about being able to get out before the bubble bursts and expectations of a bailout make bubbles costly. The cost of bursting bubbles discourages the central bank from lowering the interest rate as much as it needs to stabilize the economy. These results reflect the dilemma that many observers currently see in monetary policy–how to walk the fine line between easing too little to fight unemployment and easing too much to cause a new and harmful bubble.
The main drawback of DeLong’s model is that it overstates the welfare costs of bursting bubbles in two ways. First, it assumes that all declines in long-term asset prices are costly even if they are not associated with bubble-like behavior. Second, it ignores the role of unleveraged or partially leveraged investors. Modifying his model to correct these shortcomings leads to a very different conclusion for economic policy.
Bursting bubbles are economically harmful only to the extent that they bankrupt investors or raise fears that investors will go bankrupt. Bankruptcy imposes deadweight losses on society, resulting from the resolution process and the delays and uncertainty associated with it. Fear of a counterparty’s bankruptcy causes financial markets to freeze, disrupting overall economic activity. Lenders also appear to alternately underestimate and overestimate potential default losses and these swings undoubtedly are costly.
In DeLong’s model, the welfare cost of a bursting bubble is related to the square of the losses faced by investors. This welfare cost, however, implicitly assumes that investors are fully leveraged and thus are forced to default on their short-term loans whenever long-term asset prices fall, even when there is no bubble. This feature of the model is clearly unrealistic.
The way to reduce the cost of a bursting bubble is to reduce leverage. In a world of unleveraged (or lightly leveraged) investors, falling asset prices would not bankrupt anyone and thus would not raise fears of bankruptcy. In such a world, there are no welfare costs of a bursting bubble, at least as long as the central bank acts nimbly to keep the economy on track. It is true that investors suffer a decline in wealth, but only from a level that was not fundamentally correct to begin with. For example, the technology bubble of 2000 burst with no apparent ill effects because it was not leveraged to any significant extent and there were no government bailouts. The recession of 2001 was very mild and probably was unavoidable given that GDP was above potential in 2000 and inflation was rising.
As I have argued elsewhere, monetary policy actions to support and even increase the prices of long-term assets are warranted now to speed economic recovery and avoid deflation. Excessive increases in the prices of houses and equities are not likely given the recent experience of investors with losses in both of these markets. The old adage–once bitten, twice shy–is probably in effect for some years to come. Moreover, real estate lenders are demanding much higher down payments with stricter standards for appraisals than in the past, greatly reducing opportunities for leverage in the property markets.
Some observers, including Jim Hamilton, are concerned that low interest rates are pushing up commodity prices, possibly creating a new bubble. It is important to recognize that the susceptibility of commodities to bubbles is directly related to their storability. That is why it is easy to have a bubble in gold and impossible to have a bubble in lettuce. Storage capacity for the most important commodity — petroleum — is a relatively small fraction of global consumption, which limits the size and duration of any bubble in its price. (Indeed, the rise and fall of oil prices in 2008 appears to have reflected a bubble, but one that lasted only a few months.) Commodity prices also are sensitive to the state of global economic activity, making it difficult to determine whether or not rising commodity prices at a time of global economic recovery are excessive. In any case, the key is to avoid leveraged investing in commodities.
The global financial crisis demonstrates the need for reforms to greatly reduce the leverage of financial institutions and to make that leverage respond to the credit cycle in a stabilizing manner. See, for example, the Geneva Report on “The Future of Financial Regulation” and the Pew Task Force statement of “Principles on Financial Reform.” Focusing on the housing market, my colleague Adam Posen also has proposed linking property-related taxes to property prices in order to damp their swings.
The bottom line is that regulators need to be vigilant in maintaining the process of deleveraging and preventing any new buildup of leveraged asset purchases, including for commodities. In the long run, we need to greatly reduce the degree of leverage in our financial system and it may be a good idea to make leverage respond inversely to asset prices and to put stabilizing mechanisms in the tax system.
This post written by Joe Gagnon
The true cost of the extraordinarily low fed funds rate is the misallocation of resources, as 2003-2006 showed. The Fed held short-term interest rate (and through their promise of keeping it low for “considerable” time, longer-term rates and mortgage rates) at distortingly low levels, which was at least an important ingredient of the housing bubble. A lot of real resources were wasted on building a huge housing stock, not to mention too much consumption and not enough savings — the last 18 months show how costly this distortion is, and what we have experienced so far is only part of the full cost.
Bernanke (March 2, 2007):
“Monetary policy works in the first instance by affecting financial conditions, including the levels of interest rates and asset prices. Changes in financial conditions in turn influence a variety of decisions by households and firms, including choices about how much to consume, to produce, and to invest.”
“…monetary policy could influence economic activity to some degree even if its control were limited to the short end of the yield curve. Moreover, the pricing of some putatively long-term financial assets may be strongly influenced by shorter-term rates. Thirty-year fixed-rate mortgages provide one example.”
“…the ability to influence longer-term interest rates and the prices of longer-term assets is an important component of the Feds toolkit for managing aggregate demand.”
I am not asking Fed to lean against bubbles, only that they show some restraints in making bubbles.
Bernanke’s statement about the effect of monetary policy on the housing bubble and resulting crisis is highly selective, and should be viewed as a defensive political move that has little to do with economics, or even with policy making. Economists will debate and do regressions on funds rates and housing starts for a long time. Whatever the result, the Fed, and Bernanke in particular have other tools that clearly were not used during the build up of the housing bubble. The Fed has some regulatory powers. They were not used to reduce risky mortgage lending. In fact, the Fed did not eliminate the use of “no-doc” mortgages / “liars loans” until mid 2009. Bernanke also has a bully pulpit, and he did not use it with Congress or the public to warn strongly about: the risks of high leverage in banks, off-balance sheet maneuverings in banks, risky semi-fraudulent origination by many mortgage lenders, and low capital ratios at major banks and GSEs. With that record for Bernanke and the Fed, it becomes very clear that his recent statements are not about economics, but are part of some political strategy. The American taxpayer deserves better results from the Fed. One step in that direction is an audit of all Fed transactions, and a short schedule for making all the data public for review. It will then become clear which sectors and companies are benefiting from Fed transactions, and which are losing. Taxpayers can then better decide what these political statements are really aimed at.
The dollar index dropped a half penny today after Ben’s really nifty speech. In fact this has been happening the past few speeches by Ben, even tho the buck was in an uptrend the day before.
So I guess the Fed stimulating aggregate demand, even tho everyone except Ben seems to know we are in a liquidity trap, most likely because the consumer is tapped out (due to low rates pulling demand forward in housing, autos and everything besides lettuce for the entire decade), and needs to both deleverage and increase savings rate.
So we can add increasing aggregate demand to the Fed’s list of things it isn’t doing. Since they did already have considerable regulatory authority and chose not to exercise it this decade, that would be another thing they don’t do.
Good idea about decreasing leverage. They say they will do that someday when the economy and financial system gets better. They will still have to ask Congress and bank lobbyists if that’s ok or not.
I’ve been reading “The Sellout” by Charles Gasparino, so I don’t think taking leverage away from Wall Street will be a slam dunk.
But they could make leverage more expensive and at the same time let small savers get a few puny percentage points of interest for the use of their money.
Of course the problem is the Fed doesn’t raise real interest rates. We’ve barely had real interest rates this decade.
So I’m at a loss trying to figure out what the Fed does?
Oh yes, they make speeches! And bail out banks!
“For example, the technology bubble of 2000 burst with no apparent ill effects because it was not leveraged to any significant extent and there were no government bailouts.”
Is that meant to be a serious statement? What he seems to be saying is, if you can clean up a post-bubble mess by creating a larger bubble that hides the ill effects, all is well. I can’t believe someone is espousing this attitude in 2010. At least not on the planet earth.
Also, in case anyone has forgotten, during the Bush years quite often we would hear from the admin, usually from the admin’s official economic spokesman, the Secretary of the Treasury, that we would grow the economy and that would balance the federal deficit, which was very large at the time. Until we made it look like small change lately, of course.
They latched on to this popular economic concept as the means to justify having at least one war going and simultaneous tax cuts.
I know the Fed is independent from rhetoric like that, but indulge me while I say that was music to Greenspan’s and Bernanke’s ears.
I was also wondering if anyone knows how many multi-trillion dollar boo-boos we are allowed, before someone says that costs too much? In spite of all the good we are doing stimulating aggregate demand, that is.
“The bottom line is that regulators need to be vigilant in maintaining the process of deleveraging and preventing any new buildup of leveraged asset purchases, including for commodities. In the long run, we need to greatly reduce the degree of leverage in our financial system and it may be a good idea to make leverage respond inversely to asset prices and to put stabilizing mechanisms in the tax system.”
Forgive me, this is a wussy concluding paragraph. Yes or no, should the Fed have intervened to burst the housing bubble or not? Did it act appropriately? Should someone else have acted? If so, who and what should they have done?
Or should the Fed have bit the bullet and raised interest rates even when there was no meaningful inflation? Should the Fed have induced deflation and possibly a pre-emptive recession to prevent a greater bubble if it perceived that the other regulators were failing to act? Or is Bernanke arguing that the Fed got it right, and that from the Fed’s perspective, this recession was the optimal outcome?
Here’s what I would like to hear Bernanke say:
“We failed in managing housing debt and we failed in winding in up Lehman, and that means unemployment is probably 2-3% higher than it needed to be, even if we allow that a recession was due and unavoidable. But we have not failed in pulling the economy back from the brink. We have succeeded.
We can talk about the crisis originating in the lack of regulation, but this was a broad-based problem, affecting many countries, and not just the US. The fundamental issue was the degree of liquidity in the market. It was the steam pressure in the pipe, not the strength of the pipe or the fittings.
The pressure in the pipe comes from the phenomenal savings of China. The country is a true marvel of industry and development. China has elevated more people out of poverty in a shorter time than ever before, and probably than we will ever see again.
But China is not Korea. It is not even Japan. China has ten times the population of Japan, and its export-led model contains critical risks. By keeping the yuan weak, China accumulates reserves. These reserves are then recycled as loans to help the consuming countries–key among them the United States–consume. This is export-led growth.
But China can increase production at a rate that the US can no longer absorb in real time. China is simply too big, and if we don’t insulate ourselves, China’s liquidity will swamp us. We are, today, too small a boat. We are making a transition from being a large open economy to being a small open economy, at least with respect to the rate of change in the global economy.
This influences the Fed’s mission. We can no longer afford to focus purely on inflation and employment. To the extent the yuan remains under-valued, we must also prepare to insulate ourselves against excess Chinese liquidity. And this means proactively deflating asset bubbles wherever they appear.
In the last ten years, we have experienced Bubble 1.0 in tech stocks and Bubble 2.0 in housing. We must consider the possibility that, instead of a prolonged downturn, we may proceed directly to Bubble 3.0–perhaps in widely-held equities. Let me make plain now that we will not tolerate such a bubble. We will burst it, and do so remorselessly. Many of you will blame us, accuse us of hubris and playing God, of seeking to destroy investors and retirees. So let me put you on notice now. We will not countenance the serial destruction of the US economy. We will act if necessary, though all but a handful may later loathe us for our actions–and possibly for getting it wrong. So be it. Alan Greenspan was blessed to be Chairman during the Great Moderation. We may not have that luxury. We will do what is necessary–with reflection, analysis, discussion and prudence, but most of all, with determination–to protect the country from greater harm. That is our responsibility as the nation’s central bankers.”
That’s the speech I’d like to hear.
Germany had no housing bubble. Why?
1) ARMs are virtually unheard of.
2) 20% minimum downpayments are de rigueur.
3) There is no mortgage interest deduction.
Even if they had a housing bubble it wouldn’t have led to insolvancy on the scale in the US because of #2.
This is obviously a regulatory and tax policy issue, not a monetary issue.
Nice speech Steve. Rest assured you will never get appointed Fed Chairman, unfortunately.
I would like to add that all this bubble talk is old hat at this point. We did the “Big One” already. At this point it’s like talking about how to diffuse dynamite, in a post WW3 environment.
I did read some stuff written back in the mid 2000s by Bubbleogists, whom are specialists in the fledgling branch of economics know as Bubbleology. They did say, like Bernanke belatedly, that equity bubbles are less damaging due to much more stringent margin requirements(I only get 40% margin, so I can’t mess up the world that bad) and there is limited chance for contagion with the financial system and the real economy. Other than messing up one’s wealth effect on the economy, of course. However, I do wonder if that is really the correct view anymore, now that I know hedge funds and IBs use 30:1 margin(maybe 12:1 now since they converted to commercial banks) and can do it with equities or debt, whichever they think is hot. But the total size of the market is a little smaller, so it makes a smaller bang when it goes off. Unless we get to DOW 40,000 before going kaboom.
Similar limitations exist with commodities, tho I’m still waiting for someone to write a paper on how $140 oil in 2008 may have been deflationary. And that maybe oil traders should be charged with treason, since we do have a war going on in the Middle East.
So like Japan, we did the really bad one already.
Maybe. They also talk about sovereign debt bubbles, and those are the only kind that can eclipse real estate bubbles.
So if we want to call government debt a bubble, then we have these growing all around the world.
Mark A. Sadowski
You are absolutely right about that, but that’s not the way we do it here. But if we run that scenario in the Germarica parallel universe, demand for mortgage money would have been much lower. The consumer wouldn’t have had the home ATM machine providing an extra $600B a year in “income” (per the Kennedy-Greenspan study) and perhaps we wouldn’t have grown China into a manufacturing superpower, at least quite as quickly.
We also wouldn’t know what Germanica’s Fed would have done under those circumstances.
But I agree Germarica is probably in pretty good shape right now.
Mark A. Sadowski,
One more thing on the crazy mortgage situation in this America. To give some credit to Greenspan, so I don’t sound like a perma-basher, is around the 2004 timeframe I do remember him going into Congress and strongly suggesting that they limit the size of the mortgage volume that the GSEs were doing. Congress basically ignored him and went on to keep voting up the conforming limits to keep up with housing prices(what would old Milt say about that?), and then somehow F&F decided they needed to get into subprime lending and compete with the likes of New Century and Countrywide.
But what’s a mild mannered Fed to do?
How can macroeconomists be so blind to the importance of market prices? A market derived interest rate is an incredibly fundamental price. It is central to co-ordinating the demands of consumers for goods now versus goods in the future & the supply of resources available to produce goods of different production lengths.
A political board like the Fed couldn’t produce such an interest rate if it tried. When it gives us negative interest rates, as under Greenspan & Bernanke, it is risible to suggest they aren’t distorting the hell out of the entire economy. & yes, creating bubbles.
Our macroeconomists are telling us that the Fed can screw savers, forcing them into riskier & riskier assets to get any return at all, & that this is beneficial to the economy.
Are they really smart & just pulling our legs…or are they imbeciles?
On experimentations:
It is proved that a fly loses its auditive functions when the legs of the fly are fastened, since the same fly was flying on command when the legs were free.
Series: LLRNPT5, Assets at Banks whose ALLL exceeds their Nonperforming Loans, Banks with Total Assets over $20B
http://research.stlouisfed.org/fred2/series/LLRNPT5
Series: FPIA, Private Fixed Investment
http://research.stlouisfed.org/fred2/series/FPIA
Series: MORTG, 30-Year Conventional Mortgage Rate
http://research.stlouisfed.org/fred2/series/MORTG
Mark
One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?
Starving for yields? Too much cash chasing too few return on capital? too much Money supply ? Too low interest rates?
Barney Frank was on CNBC this morning, and he was beeming in response to Bernake’s comments.
Now, keep in mind that Frank was schtuping a Fannie exec, and is one of the forces behind allowing the GSEs into subprime. He is one of the forces behind low money or no money down motrgages, and he’s currently behind all the anti-forclosure measures that are keeping the housing market from contracting to its true level of worth.
And, of course, the CNBC talking heads let him get away with all this. Unbelievable.
I too would like to see us move to phase out Fannie, Freddie, etc. phase out the mortgage interest deduction, the deduction of state and local taxes, etc.
Steve Kopits, that was an awesome post. Perhaps Menzie could address it as a more articulate example of the “Blame it on Beijing” wing? Why is Steve wrong?
This would suggest that the optimum policy would be to deleverage before increasing short term rates, that is, requiring financial institutions to carry more capital before the Fed begins to raise rates.
Makes sense to me.
Buzzcut
No one is ever right or wrong about economics, they are just off by plus or minus a few trillion. But that’s the beauty of the science.
But to put an order of magnitude on Beijing’s financial influence on the US, the following numbers are useful.
China holdings:
GSEs $500B
Treasuries $800B
US Market size:
Residential mortgages $11T (this is a number I read about a year ago, but it’s probably still close)
US national debt ceiling $12.4T (we hit this in February)
Of course there is the impact on US manufacturing and jobs. Here I’m more worried about where China is going in the future, rather than where they’ve been in past.
Keynes, Keynes, Keynes: short term and long term expectations are the fundamental ingredients of any economic recovery. This means jobs, jobs, jobs. There aren’t going to be any jobs in 2010 and so there isn’t going to be any recovery. Very simple, very bad, very revolutionary. The winter of 1932 -33 again except not a small number of farmers with guns but a great many angry, urban poor who aren’t getting enough to eat. Let’s hope I’m wrong on this one.
The biased policy towards lower rather than higher interest rates, which is clearly the case for american monegtary policy for decades now, creates a major distortion on the behaviour on individuals that consistently saves and thus is forced to acquired new assets with a given frequency whatever its price. By promoting consistently higher prices, lower income, asset markets the ordinary consistent investor has only two choices: either leverage its investments or raise its own level of savings in order to accumulate adequate levels of capital when it will be needed. The decision between leverage or higher savings probably depends on the perceived trends of productivity growth than anything else. This is certainly the case for the last twenty years, on which we experienced tremendous productivity growth followed by tremendous widespread usage of leverage. If the investor does not leverage explicitly, ge is implicitly beeing leveraged. Take for example the now almost universal practice of stocks buybacks. Corporate executives in america looks nowadays much more like stock market speculators than real entrepenuers. The culmination of all this is the disaster faced by the ordinary individual, who having constentlly saved and invested its capital on the stock market for the last thirty years is hardly in good shape even though he began his investing carer on one of the biggest bull markets and one of the most pronounced productivity gains in human history. The failure to regognize that the agonizing fate of the poor fellow is directly linked to a certain style of monetary policy will prolong the problem for another generation. We are clearly seeing the seeds of another wave of potential injury. Dismayed by the performance of corporate america the ordinary investor is clearly trying to fill the gap with riskier investment vehicles (EM equity, the bizarre concept of commodities as an asset class, lower credit quality corporate debt, and so on and on).
In the 1980s and much of the 1990s, the bias in the Fed’s monetary policy was to higher interest rates, not lower rates until the Long-term Capital Management Crisis.
At that time Alan Greenspan apparently shifted to a strategy of lowering interest rates to support asset prices, in particular the stock market.
The individuals making money in a rise on asset prices are likely to lobby the authorities to follow policies that would make them more money. And it is leverage that is the real booster to asset prices. A Dutchman might have hard time acquiring a 1,000 guilder of cash to purchase a tulip bulb, but he can take the 100 guilder he does have, borrow 900 guilder, and buy the bulb on the belief that tulip bulb prices only go up. Even if he sells it for only 1100 guilder he doubles his money after he pays off the loan. And if the tulip bulb goes up to 2000 guilder, he has increased his profit to a 1,000 per cent. That is a very heady feeling. And the madness of 2,000 guilder prices for tulip bulbs is only seen after the crash.
It is not what Gagnon says but what he leaves out that is a problem.
Can you tell me who this omnicient regulator is? There is no doubt that the housing and credit crisis was building from at least the Presidency of Jimmy Carter and every president, representative, and senator since then contributed to the problem. As we moved into the Bush era the whole government went crazy as demonstrated in the absurdity of Fannie and Freddie. Suddenly we were in 2008 and all hell broke lose.
OK, the word is that Bernanke and Paulson were meeting every morning trying to figure out what to do but they had absolutely no idea what they were doing (see https://econbrowser.com/archives/2009/04/phillip_swagel_1.html for details of confusion within Treasury).
So if our “experts” did not foresee the dot.com problem, and they missed the biggest credit and real estate crisis since the Great Depression, just who is this omnicient regulator? Gagnon can seriously believe that Bernanke has proven himself worthy, can he?
From the NYTimes (http://economix.blogs.nytimes.com/2009/06/09/a-failure-of-regulation-not-capitalism/) to Investor’s Business Daily (http://www.investors.com/NewsAndAnalysis/Article.aspx?id=517022) to the SEC’s failure to discover Bernnie Madoff to the massive failue of the Office of Federal Housing Enterprise Oversight regulating Fannie and Freddie, there is massive documentation of the inability of regulators to actually make a difference, often exacerbating the problem. When will we ever recognize that the government regulators are the biggest part of the problem.
All demand drafts (INCLUDING ALL HOUSING TRANSACTIONS), drawn on the member banks, clear through DDs except those drawn on MSBs, interbank and the U.S. Government. And the non-banks are the customers of the member banks. I.e, financial transactions, historically, are not random.
It is impossible to miss any bubble.
ppcm,
you wrote:
“One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?”
How about they were suckers for the slick high yield low risk pitch on what in the end turned out to be crappy American mortgage backed securities. They’ll know better next time.
There’s no such thing as a free lunch.
The bottom line is Germany’s highly regulated mortgage market prevented a housing bubble from occuring there despite low interest rates. No ifs, ands or buts.
ppcm,
you wrote:
“One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?”
How about they were suckers for the slick high yield low risk pitch on what in the end turned out to be crappy American mortgage backed securities. They’ll know better next time.
There’s no such thing as a free lunch.
The bottom line is Germany’s highly regulated mortgage market prevented a housing bubble from occuring there despite low interest rates. No ifs, ands or buts.
Richardoz says that regulators in the U.S. were a failure and part of the problem. Sadowski says regulators in Germany prevented Germany from going the way of the U.S.
The difference between Germany and the U.S. is that the public in Germany is afraid of inflation and it does not support increased liquidity as the answer to every problem. The German public believes in regulation because it works there. This difference is not due to the quality of the regulators but the assumptions held by the population which controls actions by the politicians.
U.S. citizens cannot escape blame for excessive liquidity. We have supported at every turn politicians who avoided facing our twin deficits.
Mark A. Sadowski
I’d give more than a little credence to ppcm’s point. Snake oil salesmen are most effective when playing to a real want, need, or desire. It cures warts, cancer, low yield(especially when the pension plan calls for 10% return to remain fully funded)…and it makes houses affordable on a monthly payment basis when they really aren’t. This is the pitch the securitizers successfully made to our government. (see The Sellout by Charles gasparino). So Deutchbank had to play on our side of the pond. But they were not a manufacturer of the product, just a marketeer.
Besides, I read lots of financial press in the US bemoaning low rates and that some(wise) people feared it was pushing people to take on higher risk investments than they should, and the Fed shouldn’t push this choice on people.
Anonymous,
Please listen to this podcast from EconTalk
http://www.econtalk.org/archives/2009/12/winston_on_mark.html
I am sure you will hear things you have never heard before and you may even be challenged to consider errors in your assumptions.
Storability?
What was the storability of tulips during the tulipamania? What was the storability of .com’s enterprises?