In my latest piece at Mises.org I take on the notion that the Fed’s announcement of “tight” money in the summer of 2008 is ultimately to blame for the financial crisis.
I am running around with holiday travel but hopefully by the weekend I will return to my earlier post (here on the blog) about Fed statements in the summer of 2008. In the meantime, this Mises.org article will give you fodder.
One thing right now, though: What you CANNOT do is think you are taking the Sumner/Beckworth/Cruz position by saying, “Bob, of course the collapsing housing market was causing major stress in the financial markets, and those firms sitting on MBS and related credit default swaps were in big trouble. We’re just saying that in the midst of that, when the Fed needed to be flooding the markets with money and instead was reluctant, you get the Great Recession.”
The reason you CAN’T say the above, is that that is what the standard mainstream economist position has been all along. That is saying the housing bubble was the real “cause” of the crisis, and the Fed didn’t do enough to cushion the blow. The whole point of Sumner starting his blog was to say no, the FED caused the crisis. Cruz didn’t merely ask Yellen, “Couldn’t the Fed have acted sooner?” No, Cruz was saying that it was the Fed’s summer 2008 announcement itself that caused the financial crisis.
I know Sumner uses analogies like a guy driving off a cliff instead of turning the wheel, and then asking, “Do we blame the driver or the road for veering right?” But I could come up with a bunch of analogies too. For example, if some dictator in Africa intentionally starves his people, and Sumner doesn’t send every last dime to give food to the kids over there, do we say Sumner killed those kids? I mean, he had the power to intervene and chose a “tight food policy.”