| tokilamockingbrd said: recessions last between 6 month and 3 years... if they see it coming they can try and nullify the effects of a recession by preemtively adjusting rates. Greenspan was the master of this, the US in fact SHOULD have had a recession in 1996 but greenspan saw it coming and he adjusted rates PERFECTLY... this "soft landing" was the key to the 10 year boon in the US economy without a recession which lasted until the dot com bubble. |
Alan Greenspan didn't prevent any recessions, he just postponed them ...
Alan Greenspan's moronic move to lower the interest rate to 1% (effectively creating a negative real interest rate and giving money away for free) created the housing bubble; this housing bubble gave consumers a false sense of wealth and they used their "equity" to borrow large sums of money and increase their purchasing power at a rate faster than the ecconomy as a whole was growing.
The combination of inexpensive money and the housing bubble encouraged "banks" to create new lending products which targeted people who could no longer afford houses (because of the bubble) which had questionable terms; the banks then repackaged these sub-prime loans, and lenders assumed that the mortgages were safe because they were backed by the value of the house.
As house prices began to fall the entire house of cards crumbled ...
My Econ 201 prof summed it up best: You can NOT fix ecconomic problems with monetary policy!
