Forgotten Lessons

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“Those who cannot remember the past are condemned to repeat it” is a well-known quote that’s also incomplete. You can remember the past vividly and still have to repeat it. This happens when, for instance, powerful people forget (or ignore) important lessons that affect everyone.

In politics, we can often limit the damage by voting out the offenders. It’s more difficult with institutions designed specifically to avoid such accountability, like the Federal Reserve System.

In my opinion, the Fed’s failure to heed clear lessons is a major cause of our current economic problems. Today we’ll look at an example as we continue exploring William Chancellor’s forthcoming book, The Price of Time: The Real Story of Interest.

Over the last two weeks, including my last letter John Bull and Two Percent, we saw how persistently low interest rates have been creating speculative bubbles for centuries. This was well understood long ago by writers like Walter Bagehot, who were well known to Federal Reserve leaders like Alan Greenspan and Ben Bernanke. It’s not some ancient secret.

Yet these people, whose very job is to know the lessons of the past, either forgot them or chose to ignore them. Today we’ll look at how this manifested in the 2008 crisis period—and set up the conditions we face today.