The Fed Has Not Learnt From The Crisis

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The Finan­cial Cri­sis of 2007 was the near­est thing to a “Near Death Expe­ri­ence” that the Fed­er­al Reserve could have had. One ordi­nar­i­ly expects some­one who has such an experience—exuberance behind the wheel that caus­es an almost fatal crash, a binge drink­ing escapade that ends up in the inten­sive care ward—to learn from it, and change their behav­iour in some pro­found way that makes a repeat event impos­si­ble.

Not so the Fed­er­al Reserve. Though the event itself gets some men­tion in Yellen’s speech yes­ter­day (“Nor­mal­iz­ing Mon­e­tary Pol­i­cy: Prospects and Per­spec­tives”, San Fran­cis­co March 27, 2015), the analy­sis in that speech shows that the Fed has learnt noth­ing of sub­stance from the cri­sis. If any­thing, the think­ing has gone back­wards. The Fed is the speed dri­ver who will floor the accel­er­a­tor before the next bend, just as he did before the crash; it is the binge drinker who will emp­ty the bot­tle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in inten­sive care on New Year’s Day.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.