> It seems to me that bubbles only form to catastrophic sizes around the unregulated edges of markets.
Most recent economic crisis was primarily driven to crazy low interest rates, set by the Federal Reserve.
Everything else about the crisis pales in significance compared to the disaster that loads of almost free cash causes. If you set interest rates below the price of inflation, you're always going to have a short, illusory boom, followed by a massive crash. Like, around 100% of the time that's going to happen.
Those interest rates were set by regulation. Derivatives shenanigans is nowhere near as scary as effectively-free-money, which always breaks things always.
Inflation is not a constant. The single most destructive force in a crash is deflationary pressure which can quickly feed on its self and spiral out of control.
PS: When people start buying T-Bills with negative interest rates you know you have a problem. (This has happened on a few occations over the last few years.)
> The single most destructive force in a crash is deflationary pressure which can quickly feed on its self and spiral out of control.
Well, that's part of the Keynesian view yes. I'm personally of the belief that currency-fuckery causes crashes in the first place, and that more currency-fuckery isn't the answer [1].
But let's just say Keynes is right for now. That still doesn't explain why the healthy Clinton/Bush economies had crazy-low interest rates, which was the main cause of this mess.
[1] While it has a humorous spin, the Keynes vs. Hayek rap is incredibly well informed about both positions, and it's pretty easy to follow and entertaining -
Monetarism has very little to do with Keynes, its' main figurehead is Milton Friedman (not too far to the left of political spectrum from your beloved Hayek).
Most recent economic crisis was primarily driven to crazy low interest rates, set by the Federal Reserve.
Everything else about the crisis pales in significance compared to the disaster that loads of almost free cash causes. If you set interest rates below the price of inflation, you're always going to have a short, illusory boom, followed by a massive crash. Like, around 100% of the time that's going to happen.
Those interest rates were set by regulation. Derivatives shenanigans is nowhere near as scary as effectively-free-money, which always breaks things always.