This is an excellent presentation of the academic view of the financial markets. It also expresses the viewpoint of the majority of the members of the Federal Reserve Board. It is incredibly wrong.



All of these recessions were created by Central Bank actions. The problems that the Central Bank observed were good reasons to respond. But, they used techniques that were overly broad. If you are seeing an overheated real estate market you raise the down payment requirements. If the real estate market is collapsing you lower the down payment requirements. That is what China does. In the U.S. small business relies on the equity in real estate as cross collateralization for their business loans thus the policy of allowing real estate markets to collapse in panic selling is no different than tightening monetary policy during a recession.



If the Federal Reserve Board does not have the authority to do something they need to go to the Congress and get it. They need to turn out research reports and get the media to summarize those reports for the public. This is 2019, not 1965.



Why was Lehman allowed to fail? Where was the FRB? Central Banks exist to act as lenders of last resort for the banking system. Modern central banking was created because under the gold standard global economic growth was 1%. If banks don't lend you have fewer bank failures and bond holders have more protection. Economic policy should not be formed based on the perceived needs of bond holders.



If the Western democracies fail to generate 3% per year real growth there will be insufficient funds for pensions and medical care. There will be social upheaval. There is no excuse for this. The low economic growth rates in the West are because of the failure of these academics to examine their assumptions. How could anyone with any experience working in the real world use Schiller?



The U.S. yield curve was taken negative in August, 2006 (10 year- 3 mos). By January, 2007 the yield curve had been negative for six months straight. How is this interpreted as a surprise that someone is having his credit line squeezed and forced, and forced to liquidate? Especially, real estate developers that hold land positions. What is taught in our schools in the West is craziness.