From Financial Crisis to Recovery (Collection)

9. Getting Our Groove Back

Business cycles, the economy’s ups and downs, have a regularity to them. During boom times, when the economy is firing on all cylinders, euphoric households tend to spend and borrow too much. Businesses overbuild, overstock their inventories, and add too many workers to their payrolls. Banks let down their guard and make too many loans. Job seekers find they can be choosy about wages and working conditions. And with the economy running flat-out, prices for most goods and services rise quickly.

The Federal Reserve responds to higher inflation by first tapping and then invariably stomping on the monetary brakes. The resulting higher interest rates leave overextended households and businesses vulnerable. Any sort of mishap ...