A note from Barclays Spain:
“The Fed’s double mandate (inflation and employment) has probably contributed to the present crisis. Greenspan, faced with the necessity to improve the anemic growth, but probably to a greater extent faced with the pressure exerted by Congress and American society to create employment, (which still has not picked up despite the GDP’s increase) maintained interest rates low for too long, promoting together with other factors the real estate bubble that we are all too familiar with.
“Employment creation in the US is much less dynamic than expected: high rates of unemployment coexist with high growth rates (mainly at the beginning of the recoveries). Because in the US there is low health coverage and social protection, American society cannot hold out for long periods of unemployment.
“Nowadays, with Bernanke, the monetary policy has not varied much; he continues to apply the same policies Greenspan did to get out from the crisis: keeping rates low to promote investment which then should promote employment plus willingness to go as far as putting in practice as much QE as needed.
“Have you heard Bernanke say anything that might refer to the fact that he learned the lesson that that policy brought with it? Or just the opposite? Bernanke’s speech to the American Economic Society in 2010:
“Although the most rapid price increases occurred when short term interest rates were at their lowest levels, the magnitude of house prices gains seems too large to be readily explained by the stance of monetary policy alone. Moreover, cross country evidence shows no significant relationship between monetary policy and the pace of house price increases.
“We do accept that there are oth
er factors besides the low interest rates that explain what happened, but without a doubt the Fed failed at least in the supervision of the credits granted by banks and other financial institutions. We have not noticed neither remorse nor the intention to make amends and surely enough the monetary policy, the employment situation and US politics are rather similar to those at the time. Are there many differences in the fiscal policy? Frankly, the more we think about it the less we perceive any difference between republicans (classic, monetarist, neoliberal or however you want to call them) and democrats (progressive, Keynesian…) In the end, both sides propose recovering from the crisis by spending more and the difference can be summed up by who is the spending source, the private individual or the State. Is that so important? Isn’t it pointless to discuss who is more legitimised while it still has not been resolved how the expense can be made in a responsible manner?
“What is really important is how and where the money should be invested and the distinction between what is public and what is private, which has clearly become diffused with this crisis.
“In our modest opinion, the pathetic attitude of republicans and democrats towards such basic concepts as the decrease in expenditure or the extension of social benefits should be considered alarming. The political leaders not only are incapable of carrying out fiscal policies that are good for the country but they are also incapable of defining those interests. The US could lose its status if it continues on this road and at some point it could lose the markets’ confidence and suffer an attack like the one we are suffering in the European peripheral countries.”
