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Two Major U.S. Policy Mistakes

 
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PostPosted: Sun Nov 02, 2008 1:28 am    Post subject: Two Major U.S. Policy Mistakes Reply with quote

The first was predictable. However, the second was completely unexpected.

The Bernanke Fed kept a restrictive monetary stance for too long, i.e. the Fed Funds Rate at 5 1/4% until September 2007, and fell behind the curve easing the money supply. This may have resulted in a mild recession.

However, the second major policy mistake turned out to be a disaster. The Paulson Treasury allowed Lehman Brothers to fail, on September 15th, 2008, which coincided with the Ted Spread rocketing and froze the credit market quickly. This single inconsistency in the government's "too big to fail" policy resulted in enormous damage on a global scale. This may result in a moderate or severe recession.

Moreover, the negative news by the liberal media and politicians, which almost completely ignored the benefits of the free market system, including the steeper rise of living standards by U.S. households and the huge efficiency gains of U.S. firms, influenced the masses perceptions and emotions, contributing to a self-fulfilling vicious cycle.

(Hank Paulson was the CEO of Goldman Sachs)
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