The Success of Fed policy

An example of effective, but hated policy is QE and TARP, as part of the umbrella of fed policy. Liberals such as Peter Schiff and Nassim Nicholas Taleb argue that the fed has made the financial system more prone to collapse, recession, and bear markets. Reality, in contrast to doom and gloom, paints a different picture.

Going back to the past 200 years, there were many more crisis and panics before the establishment of the fed than after. There were nine major American financial panics in the span of 100 years between the early 1800’s and early 1900’s, versus just two in the last 100 years (Great Depression & 2008). Furthermore, recessions and bear markets are increasingly infrequent and brief, and bull markets and expansions are increasingly prolonged.

There were 11 recessions between 1930 to 1982 (52 years) and just three in the past 35 years, coinciding with the end of the encumbering gold standard. The 1990 and 2001 recessions were hiccups, while the pre-90′s recessions were quite severe. The 2008 recession could have been worse, but thanks to effective policy such as TARP, at just 16 months the recession was shorter than many predicted. The tireless US consumer helped, along with globalization, exports, and a v-shaped recovery in profits and earnings after the panic subsided (large cap tech, web 2.0, and credit card processing was generally immune and brushed off 2008 like it was nothing). Consumer discretionary staged an enormous recovery – one that continues to this day as evidenced by the XRT retail index constantly making news highs. America’s reserve currency status allows the treasury to print money with impunity without fear of inflation. To waste the opportunity afforded by reserve currency status and historically low bond yields in order to appease the anti-fed, anti-bailout left would be economically self-destructive and would hurt the best and brightest, such as STEM people, web 2.0, real estate investors, stock traders innovators, ..etc, who benefit the most from accommodative fed policy. And by 2011, the treasury reported a profit on TARP. It’s not surprising the left, in their war on the 1%, wants financial panic and crisis since the smartest, richest, and most successful people would be the most adversely affected by the system failing, upon which the left can rebuild society in their egalitarian image, such as in the 30′s with the New Deal and in 2008, but in the later the left was mostly unsuccessful since, unlike the 30′s, thanks to TARP the financial system stabilized quickly, thankfully.

Even if the fed cannot prevent crisis from arising de novo, it can help mitigate it, as policy makers tend to be better at fixing crisis than preventing them. An example of how centralized policy can help, is the panic of 1907, which of all the panics most closely resembles the 2008 financial problem, when JM Morgan, who pledged large sums of his own money, acted as lender of last resort, convincing other New York bankers to act in kind, boosting confidence and preventing the crisis from deepening.

Related:

Thanking the Fed for Doing a Good Job
In Defense of the 2008 Bank Bailouts, Again
The System Worked: How the World Stopped Another Great Depression

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