As evidenced by the way in which China rapidly shifted from monetary and fiscal tightening to monetary and fiscal ease in October 2008 and successfully navigated the global financial crisis, the government has had a generally good track record of manipulating those controls.
The Fed has operated a super-easy and super-cheap monetary policy since the financial crisis started in 2007, but there is a growing expectation that it may be tempted to reverse its position sometime this year.
The second and no doubt leading contributor to the gold bubble has been the world financial crisis of 2008-2009 and the subsequent worldwide central bank policy of monetary expansion to fight financial asset price deflation.
Home prices rose 23 percent in the first 10 months of 2012 and have doubled since bottoming out in 2008 during the global financial crisis, the International Monetary Fund said in a report last month.
The financial crisis resulted from expansionary monetary policy and the resulting low interest rates, which led to excessive borrowing for investment in housing.
FORBES: Government Policy Restrains An Economic Recovery Launched By The 2008 Recession
Finally, the Fed is laying the groundwork for the next financial crisis, with out of control monetary policies creating a ticking inflation time bomb, and the resulting contractionary monetary tightening when the Fed decides the inflation is getting out of hand.
Here the financial crisis has blown apart the fragile consensus between purists and Keynesians that monetary policy was the best way to smooth the business cycle.
The deepest financial crisis in a century has exposed the fragility of a monetary union without a fiscal and economic union.
Meanwhile, some analysts have also argued that aggressive monetary easing by the US and European central banks after the 2008 - 2009 global financial crisis played a big role in weakening their currencies.
The financial crisis has led to such a widening of credit spreads and tightening of credit standards that aggressive monetary policy easing has not been enough to contain the crisis.
Although an expansive monetary policy and the massive inflow of cheap money helped inflate the housing bubble, the financial crisis as we know it would not have occurred without the toxic effect of subprime lending.
Global central banks, the International Monetary Fund, the U.S. Congress and financial regulators, have thoroughly investigated the causes of the crisis and promised changes that will prevent such near disasters from ever happening again.
FORBES: Great Depression Part Deux Averted But Bubble Machine Still Blows
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