One of the things about following the news fairly closely in several countries is that it becomes pretty obvious when trends don't line up. For the past few years interest rates have been one such discrepancy. I've watched Australian interest rates being raised to slow the economy and prevent inflation while American interest rates have been lowered to encourage more growth. I assumed that this basically meant that the US was probably heading for some heavy inflation.

In retrospect it looks like the Federal Reserve was turning the one knob they had to keep the housing bubble growing. As explained in the Giant Pool Of Money This American Life podcast much of the banking system depended on maintaining growth. As the pool of good borrowers thinned they had to lower interest rates to keep the loans flowing. And then we saw what happened. For a pretty picture I overlaid some Euro Area and US Interest rates graphs from the Federal Reserve of New York to give:


What we see here is from the middle of 2006 or so a shift in US fiscal policy to try to make more capital available. I know the intentions were good. Nobody foresaw what would happen when the bubble burst, but in retrospect it feels like we'd all be a lot better off if the economy had slowed in 2006 rather than exploding in 2008.

Of course, I'm pretty uninformed and very unqualified. I'm out of wine, the wife and the cat are sleeping, time for me to join them.