The Fed Is More Out of It Than You Thought It WasSubmitted by bobbyw24 on Mon, 01/28/2013 - 11:57
The Federal Reserve recently released the transcripts of the meetings of its Board of Governors in 2007, covering a time when the first rumblings of the financial crisis were beginning to appear.
By the end of 2008, everything would have changed: The Federal Reserve expanded its lending powers to backstop the financial sector. The “Great Moderation” legacy of the Alan Greenspan era came to an end, with interest rates pushed down toward zero, while unemployment increased and inflation slowed.
As of 2007, the Fed was unprepared for what was to come, though not mainly for the reason most commentators are highlighting. The initial reporting on the transcripts has focused on whether or not the Fed saw the financial crisis coming, and most find that the Fed did not. But the Fed also missed something much more important.
For all the attention the financial crisis gets in the story of the latest recession, it isn’t that important to understanding our current weak economy. The reason that more than 12 million people are unemployed, that workers no longer quit their jobs or get raises, and that economic prospects are dim for the foreseeable future, has to do with the financial health of consumers, not the health of Wall Street.