Getting Off Track

Getting Off Track

How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis

eBook - 2009
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Throughout history, financial crises have always been caused by excesses--frequently monetary excesses--which lead to a boom and an inevitable bust. In our current crisis it was a housing boom and bust that in turn led to financial turmoil in the United States and other countries. How did everything deteriorate so suddenly and dramatically? In Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Hoover fellow and Stanford economist John B. Taylor offers empirical research to explain what caused the current financial crisis, what prolonged it, and what worsened it dramatically more than a year after it began. The author tells how unusually easy monetary policy helped set the crisis in motion, as interest rates at the Federal Reserve and several other central banks deviated from historical regularities. He explains monetary interaction with the subprime mortgage problem, showing how the use of these mortgages, especially the adjustable-rate variety, led to excessive risk taking. In the United States this was encouraged by government programs designed to promote home ownership, a worthwhile goal but overdone in retrospect. Looking ahead, the author suggests a set of principles to follow to prevent misguided actions and interventions in the future. -- Book Description.
Publisher: Stanford, Calif. : Hoover Institution Press, Ă2009
ISBN: 9780817949730
Characteristics: 1 online resource (xii, 92 pages) : color illustrations
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Additional Contributors: Hoover Institution Press


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Apr 20, 2013

This is how the term, "sadomonetarism" came to be. Such utter nonsense, as the author of this book clearly doesn't understand or comprehend (assuming he's not a professional liar, of course) the fundamental causes of the economic meltdown, or that engineered catastrophe. Energy/oil futures were speculated upwards tremendously (13.8 times above their actual physical price), as were Forward Freight Futures to drive up the costs of oil/gas transportation, and so forth. Ultra-leveraging, ultra-leveraged speculation and the largest insurance swindles in human history - - no mysteries there!

Jul 08, 2011

This is a very good book on how poor monetary policy provoked the 2008 US recession, and is an excellent companion volume to Thomas Sowell's "The Housing Boom and Bust", which shows the role of poor housing policy in causing the slump. Taylor also makes a convincing case that the government's response to the financial crisis following the bursting of the US housing bubble was badly flawed.

I have three caveats with this otherwise excellent book. First, for a highly technical volume aimed at the professional economist it is strange that it would chart overall inflation rates and house price indexes without identifying the series that are used.

Second, as a blogger noted, it is hard to swallow that the big increase in energy prices during this period was largely the result of too loose monetary policy by the US Fed. It seems that the runup in energy prices was a cofactor in the US and world recessions, and a more complete analysis would have paid attention to this.

Third, Taylor makes no mention of the defective series used as an inflation indicator by the US Fed: the personal expenditure price index excluding food and energy. A more useless series for monitoring housing bubbles would be difficult to imagine. This is well documented in my own paper: "A Better Inflation Indicactor: A CPI with a Net Purchase Approach to Owned Acccommodation, 2005-2010" presented at the 2011 meeting of the Canadian Economics Association.

Andrew Baldwin

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