Anecdotal reports during the ﬁrst year of the crisis suggested that ﬁnancial ﬁrms whose MBS-based portfolios were souring were desperate to earn substantial revenues elsewhere.?
The “elsewhere” may have been global commodity markets, which boomed during the second half of 2007 and the ﬁrst half of 2008.
The lower interest rates the Fed engineered seemingly encouraged this activity, as ﬁrms borrowed cheaply and attempted to proﬁt in commodities.
So where have they gone now? Uh……. the S&P 500 (SPX)?
What happened to oil prices later on, and what does this mean when our current bubble pops?
The debate over the wisdom of locking in near-zero rates did not take sufﬁcient account of the experience in Japan, in my view.
The BOJ changed the policy rate to near zero in the 1990s.
Short-term rates remain at zero today in Japan, 15 years later.
Some analysis suggests that the sooner policymakers set the policy rate to zero, the sooner the economy will recover and the sooner interest rates can be returned to normal.
I have seen no evidence that this is true during the last ﬁve years.
Instead, I think the December 2008 FOMC decision unwittingly committed the U.S. to an extremely long period at the zero lower bound similar to the situation in Japan, with unknown consequences for the macroeconomy.
The market is ignoring this speech……. gee, I wonder why.