Wednesday, June 22, 2016

The Fed and the 2008 Housing Crash

Richard Ebeling emails:

Dear Bob,

I participated in the June 21, 2016 “Libertarian Angle,” webinar sponsored by the Future of Freedom Foundation, with the Foundation’s president, Jacob G. Hornberger, on the topic: “The Fed and the 2008 Housing Crash.”

With the Federal Reserve continuing to artificially manipulate certain key interest rates near zero level, this week’s discussion focused on the government policies that created the financial and economic downturn of 2008 as a basis for understanding the current monetary and interest rate imbalances that America’s central bank has continued to generate.

Fearful of a possible price deflation in the early years of this new century, the Federal Reserve expanded the money supply by around 50 percent between 2003 and 2008, and pushed key interest rates into the negative range for this period, when adjusted for price inflation.

This sent out incorrect pricing signals in financial markets that imbalanced savings and investment, which in turn generated the investment, consumer debt and housing bubbles. The latter was intensified through the perverse and damaging home mortgage inducements pushed on home mortgage lenders by Fannie Mae and Fannie Mac; and which many of those banks were happy to participate in because it enabled them to make a lot of money through those political interventions that had nothing to do with proper lending decision-making in a truly free market.

The downturn of 2008-2009 was the inevitable and inescapable outcome of central bank-caused monetary expansion, distorted interest rates, and investment and housing bubbles that would have never occurred if not for the Federal Reserve and the government mortgage agencies.

The webinar runs for 30 minutes.


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