Artificially low interest rates are equally to blame for our current economic malaise. You’re presuming that fiscal/regulatory policy is swamping the presumed ‘positive’ effects of low interest rates. But interest rates are a form of pricing, too.
What we know about people is that people are naturally risk averse. Loses are exaggerated, while the psychological benefits of gains are swift and ephemeral. So you have a Fed created yield curve that is forcing people out beyond their comfort zone. What has been the benefit of a Fed-juiced economy? A roaring stock market?
Low interest rates don’t mean expanding credit. Too many businesses cannot get loans. Too many individuals can’t either. Instead of allowing the market to clear, Bush and other interventionists started picking winners and losers. The Fed stepped in to help as well. The Fed is pro-creditor and pro-bank. It’s not neutral. It’s policies hurt savers and the prudent.
Furthermore, there’s no precedent for a deflation spiral in American history. It never happened pre-Fed. All deflations end once the market, aka you and I, recognize bargains and begin snapping them up.
To be able to recognize a bargain you have to have true pricing and that only occurs in a free market. It comes when risk/reward are matched individually, person by person. Government action distorts markets and continues to distort this market. Why?
Local governments couldn’t take a massive resetting of RE prices. It would have ended local government, most of which is in liberal-made shambles already. Sadly, we could have had the best of both worlds - an end to bad fiscal policy, which doesn’t happen only at the federal level, and a move toward a free market.
The credit meltdown would have ended and deflation would not be permanent if the market ruled. Would it have been disruptive? Yes, but volatility is where profits are made.
People “can’t get loans” (first of all that’s just false) because of credit overlays the banks are placing above and beyond the normal market restrictions because they are afraid of being prosecuted by DOJ if the loans go bad. I heard that over and over and over the last 3 years at housing conferences.
I will always disagree on TARP (the original not the porked out Congress version). I think it saved an epic disaster. Far more than mere “disruption”.
“It’s policies hurt savers and the prudent.”
That’s been true in spades since about 2001.
“Furthermore, there’s no precedent for a deflation spiral in American history. “
I think “the Long Depression” of 1873-1879 was one. The first global depression. In the US it went along with the tight monetary policy required to restore the gold standard that Lincoln had abrogated. Nominal wages fell by 25%.