In a Bloomberg Television interview about a year and a half after the 2008 financial crisis, previous Fed chairman Alan Greenspan said, “Everybody missed it—academia, the Federal Reserve, all regulators.” In this same interview, he dismissed the notion that the Fed fueled the housing bubble with its loose monetary policy. To rescue the economy from the ensuing Great Recession, and the deep and persistent recessionary gap shown in Figure 2.7a, unprecedented actions were taken. The Fed’s monetary policy and the fiscal policy enacted by the Bush administration—and continued by the Obama administration—pushed the budget deficit, in per capita terms, to levels that were more than twice that of the previous record, ...
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