Guest Post by AnthonyBSanders
Today, I had the privilege of attending a fantastic seminar at the headquarters of the National Association of Realtors by Carnegie-Mellon University economist Dr. Allan Meltzer. The topic? The Federal Reserve and Housing.
Here are portions of his speech.
Federal Reserve Failures
By Allan H. Meltzer
The future is of course obscure and, at times, subject to unpredictable changes. The proposed law permits the Fed to depart from its policy rule temporarily. And the proposed legislation does not impose a specific rule. The Fed chooses the rule it follows, but unlike the present, monetary policy is more disciplined and predictable.
The Federal Reserve has made many large errors in the past. Two well-known examples are the Great Depression of the 1930s and the Great inflation of the 1970s. Recently, the Fed contributed to the Great Recession in 2008 and following. Several recent errors are described here. (Like the policy error of rapidly lowering The Fed Funds Target Rate in 2001 (tech bubble crash) only to start rapidly raising it again in 2004 as home prices were skyrocketing. Adjustable rate mortgages and loans to subprime borrowers both rose rapidly starting in 2003 and home prices peaked as The Fed Funds Target rate peaked in June 2006. The rest is history after the peak).
–The Fed made massive purchases of housing securities to bail out the industry that produced the crisis. Former Chairman Alan Greenspan had warned against and ended purchases of government backed mortgages. The Bernanke-Yellen Fed ignored that advice.
