The 2% level is rather arbitrary, but the basic idea is to set a small positive number because it is a lot easier for central banks to fight inflation (a rising price level) than for them to fight deflation (falling prices). The reason is simple: to fight inflation, it can slow spending by raising interest… Continue reading Why Does the Fed Have a 2% Inflation Target?
Month: January 2020
The Causes of the Financial Crisis
As I see it, the main cause was systemic, namely the securitization of mortgages (e.g., CDOs). This means mortgages being repackaged by lenders and resold to other investors who wanted the income from the monthly payments. This was first done in 1970 by the Government National Mortgage Association (GNMA or Ginnie Mae), but securitization didn’t really start taking… Continue reading The Causes of the Financial Crisis