Insanity, like criminality, usually starts small and expands with time. In the Fed’s case, the process began in the 1990s with a series of (in retrospect) relatively minor problems running from Mexico’s currency crisis thorough Russia’s bond default, the Asian Contagion financial crisis, the Long Term Capital Management collapse and finally the Y2K computer bug.
With the exception of Y2K – which turned out to be a total non-event – these mini-crises were threats primarily to the big banks that had unwisely lent money to entities that then flushed it away. But instead of recognizing that this kind of non-fatal failure is crucial to the proper functioning of a market economy, providing as it does a set of object lessons for everyone else on what not to do, the Fed chose to protect the big banks from the consequences of their mistakes. It cut interest rates dramatically and/or acquiesced in federal bailouts that converted well-deserved big-bank losses into major profits.
The banks concluded from this that any level of risk is okay because they’ll keep the proceeds without having to worry about the associated risks.
At this point – let’s say late 1999 – the Fed is corrupt rather than crazy. But the world created by its corruption was about to push it into full-on delusion.
The amount of credit flowing into the system in the late 1990s converted the tech stock bull market of 1996 into the dot-com bubble of 1999, which burst spectacularly in 2000, causing a deep, chaotic recession.
This post was published at DollarCollapse on NOVEMBER 17, 2017.