Since the 2008 crash, numerous economists and former Fed officials have come out publicly to admit to the culpability of central bankers (sort of). Alan Greenspan first claimed in 2008 that the Fed had “made a mistake” in its analysis and overlooked the potential of a market bubble. Then, in 2013 he came out and admitted all the central bankers KNEW that a bubble was present, but that they believed the markets would self-correct without much damage to GDP or the rest of the economy.
The mainstream financial media went on to blame the Fed for the conditions that caused the crisis, but made excuses for them at the same time. The narrative was that the Fed was blinded by peripheral factors and that it had been ignoring fundamentals. The central bankers had “painted themselves into a corner” with low interest rates, and had done this unknowingly.
This is the same narrative that Alan Greenspan used to dismiss any responsibility on the Fed’s part during the collapse of the market bubble in the 1990’s. Greenspan argued against the idea of raising interest rates in response to the bubble because it would “put the entire economy in peril”. Interestingly, raising interest rates into a debt heavy stock market and economy (a leveraged economy) is exactly what the Fed is doing today under current Fed Chair Jerome Powell.
This pattern of creating bubbles and then crashing them, resulting in financial chaos, goes back quite a long time. In the 1920’s, the Fed’s low interest rate policies and easy money led to the bubble conditions of October 1929, a month that will live in infamy as the start of the Great Depression. The Fed then raised rates sharply in the early 1930’s, which then caused a renewed crisis and prolonged the Depression well into the next decade. It took over 70 years for a Fed official to finally take blame for the disaster, but it happened in 2002 during a speech given by Ben Bernanke at “A Conference To Honor Milton Friedman…On Occasion Of His 90th Birthday”:
“In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn.Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
This might come as a surprise to some, but Bernanke lied. The Fed has continued the process of bubble-and-burst economics using interest rates and its balance sheet as weapons well into the new century, and yet very few analysts are willing to suggest that the central banks creates these crises on purpose….
Disaster capitalism is fantastically lucrative.