Sure the Fed was accommodative. After a couple of years of high inflation, Congress and the Admininstration were crying "what do we do about this terrible inflation?"... apparently giving the impression of not realizing they had caused it themselves. It took Paul Volker to slam on the brakes... jacked rates up to 15% or so, drained liquidity, and the inflation subsided. We'll need the same again at some point. And if the Fed and Adminstration fail this task, America will go up in an inflationary inferno...
Actually, I doubt it. Doing so will have the same effect as it did in Volker's time... recession. Congress will whine big time, but we're going to be dead if we don't.
Oil shocks are the main cause of inflation. Oil is the true currency of the world economy. The only difference between this crisis and the 70's is that now oil rich nations have decided not to recycle their dollars back into the US financial system. There was a deal between OPEC in the 70's to recycle their profits back into the dollar to preserve it as the world reserve currency. Recently, Iran, Iraq, Russia, and Venezuela have been diversifying out of dollars. This started early in the decade, which correlates to the weakening of the dollar. OPEC no longer wants to waste their precious reserves on frivolous Americans driving their SUV's. They want to have a high price for the product that they consider better than gold. I consider the cause of this crisis, partly the banking system became too competitive in underwriting due to laws passed by congress. This caused the system to weaken, then OPEC saw the weakness and colluded to drive up oil prices and sell a lot of US financial derivatives and debt. If you look at the crisis, the final blow that took the economy over the edge was the 140 oil.
RiceRocket: Very interesting perspective......I'm going to have to mull it over. No question that oil is probably the most important asset in the world.......it is like blood to the body. I wish the new administration would make an effort to move us more to natural gas.
I was taking those courses in the '70s.......from professors who didn't have a clue either. They thought our problems were due to capitalism.
hmm...odd....did you graduate? I remember having profs that actually knew stuff from before they were profs.
Yes, spent 6 years at UT in Austin: BBA and MSCE. Also attended UT Arlington and TCU. Of course, I was exaggerating.....there were some good profs, especially in engineering school......seems like a cushy job though. They use grad assistants to do a lot of teaching and grading. Also, I guess I can't blame the profs for my forgetting most of what I learned. Stosh