A better strategy for the late 1990s would have been to set monetary policy to address the fall in the price of gold – which was signaling deflation – and make it clear that
policymakers understood the strategy would lead to either a decline in the value of the dollar or slower appreciation in the dollar. Such a policy could have killed three birds with
one stone: weakening a then super-strong dollar, diminishing speculative fervor and avoiding deflation. If that had happened, the Fed would never have cut interest rates to 1%, and the “housing bubble” would have been avoided. Commodity prices today would also be much lower and the dollar would be stronger.
But this is where all this turns almost surreal. …The Fed itself causes bubbles by not adhering to a single mandate – price stability.
http://www.ftportfolios.com/Commentary/EconomicResearch/2008/5/27/bubble_trouble
The chick was hatched in the 90′s under Greenspan, grows under Banarke, and has just come home to roost. It’s less a Bush’s creature than the Fed chairmen’s pet. Since we can’t do anything about the Chairmen, we have to blame Bush.
