Strings

clipped from online.wsj.com In 1935, six years after the 1929 Crash, the U.S. remained mired in the Great Depression -- as it would be for five years more. At a congressional hearing, then Federal Reserve Chairman Marriner Eccles told Rep. Thomas Alan Goldsborough (D., Md.) that there was very little the Fed could do beyond what it was already doing to pull the country out of the doldrums. "You mean you cannot push on a string," said the congressman. As the Japanese demonstrated in 1990, real-estate crashes cause far more collateral damage than mere stock-market slumps. It's amazing that the U.S. policy makers chose to ignore the danger, despite repeated warnings from these pages. Between 2002 and the fall of 2007, funds raised in U.S. credit markets nearly doubled. Talk about a credit explosion! Easy money, much beloved by politicians and Wall Street, is a sure recipe for an asset bubble. So the Fed is again in the position of "pushing on a string" and finding that nothing happens.