Transcripts from the Fed meetings in 2006 have been released. Wow. These guys were completely clueless. One would have figured that the folks at the Fed would have been worried about our economy in 2006. This was just before the bottom fell out of the housing market. There was no talk about the housing market possibly pulling our whole economy into the toilet. There was talk about inflation being a problem. There was way too much talk about the greatness of Alan Greenspan who had announced that he was stepping down. I find all of this very illuminating. We tend to think of economists as having some insight into the mysteries of our economy and the market. I thought that with just a few months before the largest collapse of our economy since the Great Depression that someone in the room at one of these meetings would have been sounding the alarm. Nope.
Transcripts can be found here.
Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments.
And there was general acclaim for Alan Greenspan, who stepped down as chairman at the beginning of the year, for presiding over one of the longest economic expansions in the nation’s history. Mr. Geithner suggested that Mr. Greenspan’s greatness still was not fully appreciated, an opinion now held by a much smaller number of people.
Meanwhile, by the end of 2006, the economy already was shrinking by at least one important measure, total income. And by the end of the next year, the Fed had started its desperate struggle to prevent the collapse of the financial system and to avert the onset of what could have been the nation’s first full-fledged depression in about 70 years.