Creatures of habit

I do a lot just by habit: getting dressed in the morning, brushing my teeth, even sitting down at the computer. Habit is more effective than memory when you have a memory like mine.

//

At my old job, before I retired, we did a lot out of habit. Whenever we got a new project to work on, the first question was always "What similar project did we do before?" We relied on previous projects to answer "How did we solve that problem?" questions for new projects.

It was a so-so technique. It did answer a lot of questions, but making improvements was almost impossible.

//

Sometimes I wonder if the Federal Reserve makes decisions out of habit. When a problem arises do they ask "How did we solve that problem before"? It sure looks that way: Need to promote growth? Lower interest rates. Need to fight inflation? Raise interest rates. Need to promote growth? What'd we do last time? Lower interest rates. Already at the zero bound? Lower rates anyway, even if you have to go negative.

They don't go negative on the idea of lowering interest rates, no no. They make the interest rate negative, because habit tells them they must. No matter that interest rates don't go negative. Habit wins the contest. They're not going to change their method. They do what habit tells them.

Over at the legislative branch, they do things out of habit too. Everything they do is designed to boost growth. There is some disagreement about the right way to boost growth, yes, but the goal is always to boost growth. They never have to stop and think about that. And when confronted with inflation, their habit is to turn to the Fed.

//

I showed this graph before:

Graph #1: Growth Rate of the Monetary Base

See the two red circled areas? The one is just before the Great Depression. The other is just before the Great Recession. Lightning never strikes twice, right?

What problem could they possibly have been solving when they looked back at the Roaring '20s and let the same thing happen again in the first decade of this century?

//

Now look just to the right of those red highlights. See the big spikes? Short, fat ones after the first red circle. Tall, skinny ones after the second. Spikes both times.

We know what problems they were trying to solve with the big spikes. They were trying to solve the problems they created by letting base growth fall for a decade. Twice.

//

That's an old graph, #1. Doesn't show what happens after the big spikes. Last time yes, base growth went down below zero and created the 1948 recession. This time... Well, here's the new graph:

Graph #2: Growth Rate of the Monetary Base

This time, after the big spikes, base growth went down below zero again. It looks like they are trying to create another recession.