The Fed appears to be on its way to get some long-overdue payback. In response to the extraordinary, extra-legislative measures taken to rescue financial institutions in the wake of the financial crisis, which former IMF chief economist Simon Johnson called a “quiet coup,” Senator Ron Paul and Representative Alan Grayson sponsored an “Audit the Fed” bill, which was pared back to a Dodd-Frank amendment that provided for a one-time audit of the central bank’s emergency lending programs.
The Hill reported today that Republicans in the Senate and House intend yet again to push for the passage of an “Audit the Fed” bill. With their control of both houses, past support by some Democrats, and Trump no fan of the central bank, the measure is likely to become law.
One of the tired rejoinders of Fed defenders is that the central bank is already audited. And in fairness, the choice of the “Audit the Fed” monicker may not have been the best. However, the Fed is currently exempt from GAO audit for its monetary policy decision-making, transactions with foreign entities, and transactions directed by the Federal Open Market Committee. The idea that monetary policy sausage-making could be examined and second-guessed is what has the Fed and its allied up in arms.
The sorry fact is that the Fed has for far too long been able to shield its operations from democratic oversight and accountability by claiming it need to be independent. That is code for “democracies like to spend too freely and create too much inflation.” And the tacit assumption is that economic mandarins, in the form of central bankers, therefore need to be shielded from public pressure.
But this tidy story neglects the fact that central bankers are already subject to political influence, that from the banks for whom they act as a bankers’ bank. Ironically, it was a member of the central banking club, Willem Buiter, who had the bad taste to call out the Fed for being a victim of “cognitive regulatory capture,” meaning intellectually hostage to the banks it nominally supervised.
And the Fed’s claim to be independent has been a joke for decades. As we wrote in a 2008 post, citing the work of former Fed economist Richard Alford, the days of a combative relationship between the Fed and Congress are ancient history. Greenspan compromised the Fed’s vaunted independence and Bernanke continued in that vein, for instance, by weighing in on budget fights. From our archives:
Few have any memory of America’s central bank having a openly contentious relationship with the Treasury and Congress. Even though Paul Volcker had to withstand considerable pressure, some of his predecessors fought open turf wars. Yet from the end of World War II to the (sadly) supine Arthur Burns era, there were not infrequent pitched battles with the Fed with incidents that would seem unthinkable now. For example, Truman summoned the FOMC to pressure them into a more accommodative policy during the Korean War, then issued a White House press release claiming the Fed had made a commitment that it had not agreed to. The Fed played hardball, leaking its version of the meeting, which contradicted the press release. That led Congress to join the fray, trying to bring the Fed to heel via sharply critical hearings….
From Alford:
Since the first Latin American debt crisis, we have had a Fed that has been eager to lean against financial headwinds, but completely unwilling to take in sail when dealing with strong financial tail winds. The Fed did not the lean against either the NASDAQ or housing bubbles. Greenspan acknowledged that the NASDAQ might be a bubble, but decided it was appropriate to wait until the bubble popped and then mop up. Post 2000, the Fed denied the existence of a housing bubble. It ignored the declining credit standards, increased leverage, declining quality spreads and a Fed funds target below that implied by the Taylor Rule. The Fed then chose to characterize the bubble as localized froth even after it started to deflate. It then asserted that it was a contained sub-prime problem.
We have a Fed that is willing to incur short-term costs if it reduces inflation, but will not incur short-term costs to achieve financial stability or external balance. This would be less of a problem if another agency or agencies had the willingness and ability to insure financial and external balance, but it is clear that we do not. The Fed was granted independence and insulated from political pressure in order to accept short-term costs in order to enhance the prospects for long term growth. However, the current Fed, like the Fed of the 1970s, failed to use the freedom it was granted.
Assuming for the moment that the Fed either made an error of commission (spiking the punch bowl) or omission (failure to exercise its regulatory and supervisory powers), is there any reason to believe it was the result of an erosion of the independence of the Fed? Unfortunately, the public record suggests that Fed independence has been compromised. There is reason to believe that Greenspan entered into deals with two of the three administrations during his tenure as Chairman. Some commentators believe that he entered into deals with all three. However, the number is unimportant. What is important is that the Fed’s independence was compromised and a very public precedent was set. Never again will an FOMC Chairman be able to say “The Fed does not make deals” to a President or a Secretary of the Treasury or a member of Congress.
Compare the behavior of the Chairmen of the 1950s and Volcker to that of Greenspan. Chairman Eccles and McCabe both lost their Chairmanships because they wouldn’t compromise Fed independence. They stood their ground even after being summoned to the White House. Martin, appointed by Truman, was in later life referred to by Truman as “the traitor” presumably for taking the punch bowl away. The public image of Volcker is that of a man who twice a year endured public Congressional assaults, resisted political pressure, and enabled the Fed to stay the course.
Greenspan, on the other hand, jumped at the chance to meet Clinton, traveling to Little Rock before the inauguration. Bob Woodward in his book “Maestro” quotes Clinton telling Gore after the pre-inauguration meeting: “We can do business.” Woodward also quotes Secretary of the Treasury Bentsen telling Clinton that they had effectively reached a “gentleman’s agreement” with Greenspan. The agreement evidently involved Greenspan’s support for budget deficit reduction financed in part by tax increases. It is not clear what Greenspan received.
Even if the deal with Clinton contributed to a good policy mix, Greenspan should never have entered into that agreement/deal/understanding or another agreement/deal/understanding. The very act of negotiating and injecting the Fed into a discussion of budget decisions compromised Fed independence. Why shouldn’t Bush have expected the same? Why shouldn’t every succeeding President expect the Fed Chairman to be a “business” partner? Refusal to deal on the part of the Fed can no longer be attributed to principle and precedent. Refusal “ to do business” will now be viewed as a rejection, partisan or otherwise. The Fed is no longer able to stand apart from political battles. Greenspan severely compromised the Fed standing as an agency insulated from the short-sighted and partisan politics of Washington DC.
Back to the current post. If you need further proof of the politicization of the Fed, look at how the central bank decided right on the heels of the Trump win that it would shoot for three interest rate increases in 2017. Do they really believe that Trump will start making America great again right out of the box? His infrastructure plan is designed not to rely on fiscal expenditures. Experts expect any stimulus it provides to come after 2017 and the total infrastructure investment to come in short of its targets. Tax cuts focused on the rich don’t provide much of a boost, and that’s before you get to the fact that tax policy watchers expect the deficit hawks to prevail, which means the level of tax reduction will be trimmed considerably (with Federal spending at 18% of GDP, there’s not much trimming to be had on the expenditure side). And if Trump gets his way on tariffs, that could conceivably produce greater employment and growth down the road. However, there would almost certainly be transition costs, most importantly immediate higher import costs.
So the Fed is finally going to reap what it has sown. Couldn’t happen to a nicer bunch.
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Change, even necessary change, will gore someone’s ox. On that fear, no change can be permitted, including necessary change. Maturity requires the willingness to go to the dentist, even if we don’t want to … even if that is only to maintain our precious status quo. Over time, even the status quo cannot hold, we have to move on.
Change is definitely necessary for fed governance. But is there a summary of what this “Audit the Fed” bill will actually do? My suspicion is that rather than fix any problems, the bill is likely to increase politicization of the Fed without fixing any real issues.
A point I was making in the past about Plaza, back in the day, commercial banks had their bread and butter taken away under the auspices of capital efficacy, allowing the shadow sector run rife, so the commercial banks had to get “creative” and fiddle with long term risk like C/RE [especially RE], Now the shadow sector saw what a sweet deal it was and developed all kinds of crazy risk aversion tools [if not dead set control fruads] anywho long story short to much interconectivity and speed built into the system now means nothing less that an agreed global combined front to tackle the issue will suffice….
Yet as we speak the dominate game is whom to stuff the bag with and the resulting geopolitical game theory…..
disheveled…. someone needs to tell everyone to say – POP – then when their collective heads are out of their asses… deal with it…
I applaud the inappropriately named “Audit the Fed” initiative, but wonder what use it will provide? We’ve known about Pentagon waste for decades and have boondogles like the F-35 program continually acting as a black hole for federal spending, and yet nothing is ever done about it. Other than ruffling the feathers of the Federal Reserve Board and staff, I just don’t see how this creates change in how the Central Bank Acts.
What about getting a firm answer on ‘gold swaps’? There is substantial evidence that the Fed authorizes lending against or outright loans USA owned gold at the Federal Reserve Bank in NY to various other parties. Exactly how much gold has been hypothecated? I for one would very much like to know if the Fed is intervening in currency or gold markets.
I once shrugged off all the precious metals/’plunge protection team’-related conspiracy theories.
But there have been enough proven financial frauds/backroom dealings that pretty much nothing would surprise me anymore
At least it would move secretive Fed actions from the realm of tin foil hatter speculation to the official realm of government oversight and checks and balances – say, like we enjoy with the SEC, OCC, GAO, FDA, EPA and other oversight and regulatory functions. hahaha. Not to say we don’t need those things.
Suggest you look at George Webb’s videos to see where the F-35 funds are really flowing. https://m.youtube.com/#/watch?v=MpwXb__QNps
If this does pass, and the intent and spirit of such a Bill becoming law is enforced in full, it’s too bad Mark Pittman isn’t alive to see it.
I believe you mean Senator Rand Paul, not Ron.
No, the Audit the Fed bill that was passed by the House and eventually became a section of Dodd Frank was sponsored by Ron Paul and Alan Grayson.
https://en.wikipedia.org/wiki/Federal_Reserve_Transparency_Act
See more detail here:
http://www.ronpaul.com/audit-the-federal-reserve-hr-1207/
Ron Paul had been trying to get an Audit the Fed bill passed for many years.
As Yves said, its Ron. Ron has been trying to get the fed ‘audited’ since before it was cool, by which I mean, for at least 8 years now, maybe more. He mentioned it regularly during the 2008 and 2012 Republican primaries.
Liberals should applaud this and demand more good/competent governance measures.
Identity politics means nothing if the top 0.5% keep scooping up all the wealth and leave the bottom 98% to fight over bathrooms and soda taxes.
Well said, however many libs/progs are throwing hissy fits or in fetal positions in the closet. I am a recently (2008) reformed lib/prog, and see the behavior of my former comrades as embarrassing and, worse, delusional. Hard to watch, but can’t take my eyes off of it.
Don’t just audit the Fed, abolish the Fed. We need a sovereign, nationalized central bank–not a bankers’ bank.
Yes Abolish the Fed! That is the first step to reforming the system so it works for all the people, not special interest groups.
I agree that the Fed should be abolished but I fear that a nationalized central bank would not escape the politicians meddling.
A nationalized central bank is a sovereign bank that is able to function as a sovereign bank… the Fed has insinuated itself (private banking cartel that it is) into national banking for a century in the interest of the private banks. The Fed audit should seek the legal premise for this and decide if it is indeed “legal”. First and foremost the Fed works to protect the value of the dollar against national wage inflation and then to balance the ups and downs of the national economy. Once upon a time we had a ‘gross national product’ and now we have a ‘gross domestic product’ which indicates that as globalism took hold of our economy via offshoring (which should also be investigated) and everything that was nationally accounted for morphed without so much as a vote into just those enterprises that were stuck in-country and paid their taxes, etc. Shouldn’t we take a hard look at this? In addition to this we financed war under the table with abandon. Makes me wonder if we shouldn’t also audit the DoD and the military. Couldn’t hurt. Auditing the Fed isn’t a bad idea, except that the whole concept of a national economy is too far gone. We’re gonna need more than a Fed audit. Elvis has long since left the building.
Whether or not abolishing the Fed is good policy or not, the Fed won’t be abolished unless there are some smoking guns proving Fed corruption. Auditing the Fed is an important step in this direction.
Happy Anniversary (sorta)
Jan 3 1928
US Supreme Court Rules that Federal Reserve is a private interest.
“Instrumentalities like national banks or the federal reserve, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest.’
[ 275 U. S. 415 ]
Maybe the Fed will play the red (jurisdiction) card this time.
I welcome that discussion. The US Consitution Article 1 Section 8 states that Congress has the power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”
You recall the Fed was set up by Congress in 1913. They can undo more of the WW1 madness by ending it.
Well cm, CONgress HAS essentially been ‘coining money’ ….. for themselves .. eh ?!!
Ending the Fed, as it is – a privatized money and banking system, is fine, but it seems we need both a money system (public ?) AND a banking system (private ?) if we’re ever going to achieve anything near stability on these operations.
This opinion offers this within-text note about the Fed as a comparison in reference. The case itself was not about whether the Fed is exercising any agency of a sovereignty. It is about a different statutory creature under a different Act. This is not a holding of law about the Fed, it is an explanatory reference. If the case was about these points about the Fed,then we ought to take care. Otherwise, do not accept this lobbiest’s rationale as law.
But the case did not test this question about the Fed being private or owned by people who sent the entity some money. And if you follow one logic, it seems someone could offer up some money/ call it capital, and wall off the public’s sovereignty includingthe coinage and value clauses of the Constitution itself. That would be an absurd result (now, not so sure in 1896 though).
Does anyone look at the statutory constructions and delegations of authority from the legislature to the Fed and not see that it is acting as a sovereign’s agent? In my view, todays Courts all would be much more careful in their writings here, and ckearly they woukd never suggest you could enter into a money deal with the sovereignty and escape from governance as a result.
My holding is that the Fed is an agency exercising delegated powers of the public via the legislative Article’s definitions, properly enacted as the public’s law. It is not owned by the private banks.
Legislating on the Fed invites new language and direction of the public’s law. Perhaps a bill should clear any misunderstandings up, curtail mischief from the Courts, and give the banks back their money (it wasn’t much, and dividends have been paid all the time on the money, so just direct the Fed to have the currency printed and shipped back in the same nominal amount). Done with these absurd notions that the Fed is owned by the private banks and it isn’t a public agency.
Wait, aren’t the Republicans the bad guys???
What the sam hill is going on !
Blind squirrel…. acorn… you know the rest.
I always wonder about the hero worship when it comes to the FED, which seems to be based on low interest rates, not regulating, and giving it credit for the “great moderation” but no blame for the “great recession.”
I suspect most of this is due to the fact that “monetarism” fits nicely into the theory of the “free market.”
As stated in the post:
“But this tidy story neglects the fact that central bankers are already subject to political influence, that from the banks for whom they act as a bankers’ bank. Ironically, it was a member of the central banking club, Willem Buiter, who had the bad taste to call out the Fed for being a victim of “cognitive regulatory capture,” meaning intellectually hostage to the banks it nominally supervised.”
Yes, the FED decides to bail out AIG, and allow people at AIG to collect massive bonuses, AFTER HAVING COMPLETELY NOT UNDERSTOOD THE RISKS of what they (AIG, but gosh, you could add the FED as well) were doing.
http://money.cnn.com/2014/05/09/news/economy/geithner-book/
“One of the most hated moves of the financial rescue — allowing bonuses for AIG bankers to go through — was a tough sell to Obama, Geithner wrote. But he and others at Treasury didn’t believe Washington could stop them.
“Let me get this straight. We’re going to pay bonuses to the very people who caused all this damage to the financial system,” Obama asked Geithner, according to the book. “And, by the way, a lot of them live in London so we won’t even collect taxes on their bonuses?”
=======================================
Maybe one reason why Hillary isn’t president, is ……President Obama. And just to add the whole Russia hacking thing, maybe government experts don’t know what they are talking about (Geithner) and/or have ulterior motives….
As I understand it, the idea was that the bonuses had to be paid because the only people at AIG who knew how to fix AIG were these people…who caused the problem. Also mumbo jumbo about contracts – but I understand that in bankruptcy – which AIG was effectively in – contracts get modified all the time. The FED wanted to help its “brothers in finance” stay rich, and gosh, it was just forced due to “ECONOMIC PHYSICS” to f*ck everybody else….
It either says something about the lack of imagination at the FED OR how corrupt the FED is that no one at the FED could figure out that you could save the institution, but FIRE the clowns running it. Again, If Obama had fired** Geithner on the spot (and I mean FIRED, not let him resign to spend more time with his family) Hillary would probably be president today.
** I can’t help but think if Trump FIRES someone, it will be good for his image.
What does “audit the fed” mean?
It has audited financial statements.
The Fed has a Big Four firm audit them.
So?
From the article:
The Fed keeps at least two books, apparently like big banks do. We know this thanks to what Ron Paul’s actual audit revealed in 2008: on the very day that Congress was arm-twisted into voting for a $700 billion bankster bailout, the Fed actually began disbursing $8 *trillion* to European and American banks. No headlines, no legal paper trail. Jamie Dimond’s Citicorp got more than 10 times it’s official bailout amount, making him a pants-on-fire liar because he claimed they made him take even that piddling amount. He could lie with a straight face because those actual Fed disbursements were secret, even though the Fed has accountants. Without the actual audit we would have no idea where the Fed’s magic money goes.
Minor correction: Either Jamie Dimond’s JP Morgan-Chase *or* Vikram Pandit’s Citicorp.
Citation(s) required for the $8 trillion.
The reason I bring up the latter point is that although yes we know that the Fed has long been cognitively captured/corrupted by the FIRE sector and needs to be brought to heel or totally abolished, nevertheless, it does behoove us here at NC to stick to “The facts Ma’am, just the facts”. Not doing this re the FIRE sector has long been one of the progressive/left’s major weaknesses.
Arizona Slim heartily recommends Robert Auerbach’s book, Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank. He discusses the book here:
https://www.c-span.org/video/?302584-5/deception-abuse-fed
The sorry fact is that the Fed has for far too long been able to shield its operations from democratic oversight and accountability by claiming it need to be independent. That is code for “democracies like to spend too freely and create too much inflation.” Yves Smith
Deficit spending by the monetary sovereign does create net deposits with banks* so such spending MIGHT cause price inflation but the government privileged usury cartel THEMSELVES may create deposits (“loans create deposits”) and vast amounts of them too since the corresponding liabilities are largely a sham wrt to the non-bank private sector.
So it seems more likely that the government privileged usury cartel ITSELF is responsible for most price inflation once deficit spending by the monetary sovereign stimulates a recovery.
Also, how does the Fed restrain price inflation other than with welfare proportional to wealth, e.g. interest on reserves (IOR) and the sale of positive yeilding sovereign (thus inherently risk-free) debt or via the sale of private assets (e.g. mortgage backed securities) it should never have bought in the first place?
*Deficit spending by the monetary sovereign also creates new fiat deposits at the central bank 1-for-1 with new bank deposits but since the non-bank private sector may not use fiat except for unwieldy, unsafe physical fiat** this new fiat does not directly cause price inflation except insofar as it lowers borrowing costs in fiat for depository institutions.
**a gross miscarriage of justice in itself, btw.
Correction:
“Deficit spending by the monetary sovereign does create net deposits with banks* so such spending MIGHT cause price inflation”
should read:
“Deficit spending by the monetary sovereign might create net deposits with banks* so such spending MIGHT cause price inflation”
since I neglected that the repayment of bank loans destroys deposits. Thus deficit spending by the monetary sovereign need not create net bank deposits – a fact that would come in handy should we ever have a universal fiat distribution, e.g. Steve Keen’s “A Modern Jubilee”.
The loan process is instantaneous. The repayment process can take a generation or more. I think your first statement was probably accurate for all intents and purposes, no?
The repayment process can take a generation or more.
Yes but still a significant amount of bank deposits are destroyed by loan repayment every month and that fact is useful since it makes possible an inflation-free fiat giveaway – IF banks can be contained in their new deposit creation by, say, the very reasonable approach of making the corresponding liabilities they create wrt the non-bank private sector GENUINE liabilities and not largely the sham* liabilities they are today.
*I.e., the ONLY way the non-bank private sector can redeem bank liabilities is via physical fiat, i.e. “cashing a check.” But how practical is cash except for petty transactions?
The genius of Martin and Volcker was that they didn’t believe they were geniuses. They focused on their mandates and did what their basic models indicated they should do, even though it was pretty unprecedented in Volcker’s case.
Alan Greenspan was a “maestro” and therefore tried to be a brilliant behavioral economist instead of a monetarist thinking he could simply jawbone the results instead of doing monetary actions. As a result he twice cheer led the “madness of crowds” completely missing how not adjusting interest rates would be interpreted as an “all clear” to go insane. Also, anybody who thinks that financiers can be “self-regulating” needs to be banned from public service forever as it is clear that they live in a Lewis Carroll universe.
I actually long for the days when the Fed almost randomly announced Fed Funds and discount rate changes with little prediction. The constant babble every month while single sentences from their minutes are parsed like tea leaves is nuts. Their prediction of three rate hikes next year is effectively the same thing they have done over the past several years, except that they didn’t actually do it because they tried to be Greenspan, talking but not doing.
The Fed needs to focus on monetary conditions, namely inflation and employment as their mandate calls for. Instead, they appear to have been much more concerned about wealth effects and the stock market over the past two decades, which is probably the reason why we have seen a roller coaster stock market with booms and crashes. I think the wealth effect and Laffer tax cut curve have been two of the worst economic theory implementation disasters of the past 30 years. Cutting marginal tax rates from 90% to 50% is vastly different in impact from cutting from 40% to 35% while pushing stock into bubble territory doesn’t appear to have positive long-lasting economic benefits. Focusing on underlying monetary and economic conditions would be a much more effective way of the Fed determining its policy.
LOL “dual mandate” LOL
Lowest unemployment in 43 years and rates pegged at flatline.
We need sovereign money, not banker bonus protection schemes. Do what Ecuador has done: their money is now issued by the CB, not commercial banks. Even better, do what Lincoln and JFK tried: issue money straight from Treasury. Trump would need a bullet and bombproof limo to pull that off.
Fed “independence”: but Congress approves appointees. Oops, only from a list of candidates provided by…The Fed.
Yes folks it is a hideous cabal designed to enrich the .001%. The GAO preliminary figures show $16 trillion in swaps, guarantees, and gifts to corporations and banks across the globe. Heads I win tails you lose for the chump citizens around the globe. But the reaction to any audit will be the same as the Panama Papers reaction: nothing.
The big blunder post 2009 was Geithner and Holder not investigating and prosecuting the financial sector (not that they could even conceive of that notion). The most effective ways to control the financial sector is to investigate and prosecute as well as manage reserve requirements. The insider trading prosecutions were largely just theater since the real money and social danger was fraud and market-rigging. I don’t mind saving banks as long as the people who took them down are turfed, and, where appropriate, prosecuted. The institutions and the people have to be separated from a regulatory perspective.
Over the past several years, my primary concern with the Fed was that they backed off from raising interest rates anytime the stock market hiccupped. That has probably allowed for a lot of additional very risky (stupid?) investing over the past several years that could exacerbate the eventual downturn significantly. Their policies have also led to much bigger banks with potentially much bigger impacts upon demise.
Low unemployment, but not particularly high GDP and median household income growth. Most of the increase in labor costs has been for healthcare insurance where the proceeds tend to end up in the top 1% pockets.
Inflation has been 2% +/- so we should have been at 1-2%+ Fed Funds rate for a while now. The Fed is now playing catch-up. Keeping the Fed Funds rate low helped the banks make money on the spread between the long bonds and the Fed Funds rate. A 1-2% Fed Funds rate would have meant the banks made a lot less money unless there was less QE so that long bonds stayed a bit higher (in current range)..
The Fed has all the cards in this game. It’s the biggest TBTF there is. At most the Fed will say: “Dear Donald, in actuality we are truly f***ed, but you’ll be even more f***ed if the truth gets out. Your move.”
“The sorry fact is that the Fed has for far too long been able to shield its operations from democratic oversight and accountability by claiming it need to be independent. That is code for “democracies like to spend too freely and create too much inflation.” And the tacit assumption is that economic mandarins, in the form of central bankers, therefore need to be shielded from public pressure.”
What a whitewash. Who’s in control, the politicians or the bankers?
“Who’s in control, the politicians or the bankers?”
That ones easy. Notice that Bankers give generously to the campaigns of the politicians.
It’s easy to give out money when it’s free… Chicken meet egg…
I’ll just throw this out because it’s a pet peeve….. Why do we accept that 2% inflation is good?
What that means is your savings is halved every 35 years +/-…. Who benefits? Those who can raise prices at will… monopolies, government, owners of capital…….
Look at the money supply leading up to 2008:
http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg
Everything is running out of control and the increase in the money supply is going exponential and heading off to infinity.
If we understood money, 2008 wouldn’t have been a “black swan”.
Money and debt are opposite sides of the same coin.
If there is no debt there is no money.
Money is created by loans and destroyed by repayments of those loans.
Fisher developed a theory of economic crises after 1929 called debt-deflation, which attributed the crises to the bursting of a credit bubble.
Hyman Minsky came up with “financial instability hypothesis” in 1974 and Steve Keen carries on with this work today.
Steve Keen saw the private debt bubble inflating in 2005, it wasn’t a “black swan” to him.
In 2007 Ben Bernanke could see no problems ahead.
When you see overall debt increasing rapidly a credit bubble is forming, you can then nip it in the bud before the damage gets out of hand. This also can be seen in the nation’s money supply (debt = money).
Understand money. From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
We need to be vigilant as today’s experts aren’t going to see the next black swan coming.
Once they attributed it to a black swan they stopped looking, it’s clear on that tiny graph.
We used to attribute eclipses to the sun being swallowed by a mythical creature.
If scientists were like Central Bankers we would still think the same today.
The FED won’t see the next black swan coming, keep an eye on the money supply so you can see what they can’t.