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I recently received in the mail the 2008 Annual Report of the Federal Reserve Bank of Minneapolis. The title of the report is "The Current Economic Crisis: What Should We Learn from the Great Depressions of the 20th Century?" After reading the report, it is clear to me that either the Fed has learned almost nothing about 20th-century depressions or it is lying through its teeth in order to shift the blame for causing the current depression (or both).

Relying heavily on another Minneapolis Fed publication, the article in the Annual Report authored by Gonzalo Fernández de Córdoba and Timothy J. Kehoe asserts that "bad government policies are responsible for causing great depressions." So far, so good. But then the next sentence informs us that "while different sorts of shocks can lead to ordinary business cycle downturns, overreaction by the government can prolong and deepen the downturn, turning it into a depression."

This is mainstream macroeconomic gobbledygook: downturns in the economy are caused by random "shocks," sort of like economic lightning bolts from the sky. The kinds of "shocks" that these authors mention include declining commodity and housing prices, increases in "world interest rates," and, in the case of Finland, "collapse in trade with the former Soviet Union." No mention at all is made of central-bank monetary policy as possibly introducing economic instability. In light of all the criticism the Fed has received for being the cause of the current crisis, it is intellectually bankrupt for these authors to not address this issue in even a single sentence.

Having ignored the role of central banks in generating boom-and-bust cycles, the "lesson" the Minneapolis Fed economists claim to have learned from their study of past depressions is that the "cure" is even more central bank inflation. "[G]overnments need to focus on providing liquidity," they solemnly intone. Following Alan Greenspan, they blame the current depression in the United States on a new version of "the yellow peril": impoverished Asians who have a penchant for saving a large percentage of their income. "Over the past decade, lending by China and other countries in East Asia … has kept world interest rates low." This is what fueled the real-estate boom, they say, ignoring altogether the role of Fed policy, as well as the policy of every arm of the federal government that is involved in housing (from HUD to Congress to the Fed itself) to force mortgage lenders to make bad loans to unqualified borrowers to achieve its goal of "making housing more affordable." (In reality, worldwide savings rates during the 2001–2008 period were actually lower than they were during the previous 15-year period.)

Having totally absolved the Fed of all responsibility in creating the housing boom and bust, the Minneapolis Fed claims merely that "falling housing prices" are what caused all that "systemic risk," which they say needs to be more heavily regulated by — you guessed it — the Fed. It is the public that is ignorant of the causes of "systemic risk," they say, when in reality it is Fed bureaucrats like the authors of this report who are the truly ignorant ones. Either that, or they are lying to protect their jobs. This alleged lack of understanding by everyone in the world, with the exception of Fed central planners, "calls for reform and, perhaps, new regulations," they say, and "central banks … should lend to banks to maintain liquidity." That is, they supposedly need to inflate more and create more bubbles.

Fed economists — like mainstream macroeconomics in general — are intellectually bankrupt and clueless at best or dishonest propagandists at worst.