When the Fed Does Too Much

In the 2000s, the Fed kept interest rates low to stimulate aggregate demand. But the cheap credit also helped fuel the housing market bubbles. We’ll look at the case of the Great Recession as an example of where the Fed did too much in one area, and perhaps not enough in others.
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[@hazadus3]

In summary, the FED has no idea what they are doing.

[@Brazbrah]

I know this is mainly US focused, but how much is Fed policy influenced by its potential impact on global and, in particular, emerging markets, where commodity prices, debt and FDI are all closely linked to USD? Good video as per usual!

[@strongman325]

I would assume its influenced by potential impact on global and emerging markets insofar as those global and emerging markets affect the US. The fed is a US institution and it will do what it thinks is best for the US economy, not some other country's economy, in general.

[@Vn-no4fv]

Fed's policy on interests rates affect the FOREX market a lot and demand for dollar assets, which does impact the worldwide economy.

[@Mujangga]

Weren't lenders like Freddy Mack and Fanny Mae forced by the government to lend to borrowers that they would not have otherwise?

[@tommyrosati9326]

Mujangga Yes

[@Anil9438]

great video

[@michaelspence2508]

Milton Friedman's idea of a Negative Income Tax seems like it would have worked wonders during the Great Recession. Not only would it have increased aggregate demand, but it would have increased the velocity of money as well. Households maximize utility, so giving them money directly would have stimulated the economy in just the right ways. Join a negative income tax that people can live on with a removal of the minimum wage (Friedman's original idea) and the economy will take off like a rocket.

[@alexturlais8558]

How would that be significantly different than existing welfare programmes?

[@StockTradingMaster]

The Fed using interest rates to support or slow the economy in response to a sub-sector of the economy that needs help is a bit like using chemotherapy to target a specific type of cancer. As new advances in medicine using CAR T cells to specifically target a certain type of cancer, so too does the Fed need to be more specific in targeting a sub-sector of the economy. Specificity will likely be the future of Federal Reserve policy. Another specific area the Fed could have targeted before the Great Recession was rating agencies like Moody's and Standard and Poors. I don't think Dodd-Frank is needed to expand the Fed's authority to do so either. If rating agencies are setting the value of the debt that bank's are loaning money against, then the central bank has authority to regulate rating agencies without Dodd-Frank. Neither the SEC nor the Federal Reserve have implemented all of the credit rating agencies reform policies likely because of push-back by lobbyists leaving me of the opinion that its a corrupt system until credit rating agencies reform takes place. You can't have private rating agencies taking money from the very companies whose instruments they are rating. Until that is changed, specificity will only take us so far IMO.

[@right-winglibertarian3896]

END THE FED!!!!!!

[@abhilashkhajuria]

i am not an American i am an India but i strongly disagree with you. How dare you raise your finger on an institution. Do you want to give power in the hands of mafias and goons who don't care about anyone.

[@elaguy3549]

You just described the Federal Reserve.

[@jcaleb828]

@@abhilashkhajuria "How dare you raise your finger on an institution" In America we can actually criticize our government and we do often because most of us don't like government encroaching into our lives

[@gustavofring8765]

@@abhilashkhajuria your you are from India where the RBI governors of great economists, in fact Raghuram Rajan (ex RBI GOV) predicted the housing bubble but it is wholly different in US they don't even know who controls/owns they federal bank