Fed Created the Financial Bubble

With a collapsing housing market, a falling stock market, and a serious economic recession on the immediate horizon, the blame game about who or what has been behind the financial nightmare is in full swing.

In recent testimony before a congressional committee former Federal Reserve Board Chairman, Alan Greenspan, pointed his finger at various financial insurance schemes and the inescapable uncertainty of the future. “We’re not smart enough as people,” he said. “We just cannot see events that far in advance.”

The one thing he did not admit was that it was his own monetary policy when he was at the helm of America’s central bank that created the boom that has now resulted in a crash.

The ballooning housing market and the rising stock market of the past decade would have been impossible if not for the easy money policy of the Federal Reserve. Monetary expansion through the banking system and resulting low rates of interest fed the housing and stock market frenzy, indeed it made them possible....

Greenspan was certainly right that an uncertain future makes it difficult to predict when speculative bubbles will burst. But it was not unpredictable to know that years of easy monetary policy and accompanying near zero or negative real interest rates were creating an unsustainable boom that was setting the stage for an inevitable great crash.

read the entire essay