Yes indeed. How the central planners at the Federal Reserve manipulate the economy (and inevitably screw it up) is not understood by most politically engaged people. For instance there are still those who insist that the crash of 2008 was the fault of capitalism and “free markets.” This couldn’t be further from the truth.
The central planners at the Federal Reserve, in the wake of the dot com crash and the September 11th attacks kept interest rates too low for too long. It then encouraged too many people into the housing market. Once the bubble started inflating the malinvesment fed on itself until the whole thing collapsed.
In a free market interest rates would have moved up and cooled the housing market. We’d likely have avoided any crash. But in our Fed dominated economy this was not allowed to happen.
Now we have an economy that in many ways is much more tenuous than the pre-2008 economy. The Fed has over corrected (again) for its prior mistakes and has sewn the seeds of the next financial downturn.
Of course when it comes many people will come out of the woodwork to explain that the downturn is somehow the fault of the “market.”
Again, this couldn’t be further from the truth.
While the government grossly overspent at a time that the economy was sputtering along from 2009-2016, the credit card bill was picked-up by the Fed. The central bank printed the necessary money to finance purchases of federal debt. This practice kept interest rates artificially low, which forced investors looking for a return into the stock market.
During the 1st 1000 point drop last week I was watching CNBC at the gym. An older fellow next to me started talking to me about the market, the 1987 crash, and the gyrations since. Then he lamented that he didn’t really want to be in the market anymore but because he could get no interest on his savings he basically felt like he was forced to be in the market.
Now multiply this sentiment by millions of times.
Thus, the strong stock market of the Obama era was inversely related to the weak underlying economy.
Under President Trump, the economy is now growing at recent records, and has reached a growth rate not seen since the Bush Administration. This economic growth has begun to put inflation pressure on the economy, since the Fed flooded money markets during the lean years. This means that interest rates must now begin to rise to keep inflation from wiping-out our economic recovery and the value of people’s money. These rising rates, however, will have the effect of correcting an overvalued stock market from the era of Barack Obama, and then-Fed Chairman Ben Bernanke.