since their balance sheets are in good shape. Plosser attributes this to financial innovations (financial engineering) in the last 10 to 20 years that have enabled crunch. The deflation of the bubble is the result of the Fed’s boom-bust monetary policies. Here is why. We define a bubble as activity that has emerged on the back of the loose monetary policy of the central bank. In the absence of monetary pumping this type of activity
of the FIH is that, during good times, banks and other intermediaries strive to innovate with regard to the assets they acquire and the liabilities they market. of debts”) try to lure investors to buy the debt by means of sophisticated innovations. The chase for making more profits causes players in financial markets to bank, i.e., the Federal Reserve’s monetary policies. It is the loose monetary policy of the Fed between December 2000 and June 2004 that laid the foundation for
it is mainly Southeast Asian countries, particularly China, that practice this policy in an informal way. Through this arrangement, these economies in Southeast was the prime risk factor for currency speculators, a restrictive monetary policy with higher interest rates in the revaluation candidate would attract even well in place for the United States: unrivalled military might, a booming and innovative economy, and the status of undisputed issuer of global currency. The US
mining, recycling, more efficient use of resources, and other forms of technical innovations would ensure that we would never run out of commodities, but have them in movements that Rogers has left out is the strong influence of monetary policy on commodity prices. This is particularly puzzling since Rogers is in fact an are certainly very important too, we can see several instances where monetary policies have had a decisive effect on commodity trends. A key reason why commodity
a plausible theory would run like this: when the United States adopted pro-growth policies, it led to increases in tax revenue and an inflow of foreign investment. and allowed a much more generous exemption for capital gains on home sales. This policy shift partially explains the growth in stock and real estate values; the can often overcome the obstacles put in place by the politicians. The recent innovations in finance and international trade are largely beneficial, and reflect
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