3 Decades of Boom-Bust Cycles From The Greenspan Put

Professor Antony Mueller, in his blog, enumerates the litany of events which had been supported by the "Greenspan Put" or the monetary policy of lowering of interest rates to provide for liquidity injections in order to support asset markets.

This became a permanent feature in today's financial world and had been deeply embedded to the public's psyche almost similar to the conditioning effects of Pavlov's Dogs.

Unfortunately, unsustainable booms eventually transitions into nasty busts.

From Professor Mueller:

Bailout economics – three decades of monetary excesses

1987 Stock market crash
1988-90 Savings and Loan crisis
1990 Stock market “mini-crash”
1990-91 Gulf War I
1990-91 US mini-recession
1994 Mexican peso crisis
1997 Asian financial crisis
1998 Russian debt crisis
1998 Long-term Capital Management collapse
1999 Y2K liquidity crisis
2000 NASDAQ collapse (dot.com bubble)
2001 US recession
2001 9/11 terrorist attacks
2003 Gulf War II
2003-2004 Deflation scare
2005 Housing froth
2007 Beginning of housing crash
2007 Financial market “freeze”
2008 Stock market crash
2008 Year of the mega bailouts
2009 Financial crisis turns into economic crisis

In addition to Professor Mueller, the chart below is an illustration of the above (I forgot the source of this-my apologies)

And the boom bust cycle as aptly described by Roger Garrison is a constant of the Austrian Business Cycle Theory. Mr. Garrison explains (all highlights mine),

``The Austrian theory is not a theory of recessions per se; it is a theory of the unsustainable boom. As such, it has a much stronger link to the underlying microeconomics than does much of today's mainstream theorizing. The Austrians focus broadly on credit markets and ask what happens when the price of credit, i.e., the interest rate, is held below its market-clearing level. If interest rates were held too low by legislation (interest-rate caps), there would follow an immediate credit crunch. This "if-then" proposition is a direct analogue to the proposition that rent control causes a housing shortage and, more generally, that price ceilings cause quantities demanded to exceed quantities supplied.

``But what if the central bank papers over the shortage with newly created money? Would this way of bridging the gap between credit supplied and credit demanded transform the would-be credit crunch into sustainable economic growth? Hardly. It would simply insert a time delay between the "if" and the "then." In effect, the credit crunch is transformed into a boom and then a bust. The extent of the resource misallocations during the boom have a direct bearing on one aspect of the downturn. The necessary reallocations are roughly proportional to the prior misallocations. It is in this context that we can say, "the bigger the boom, the bigger the bust." But for both theoretical reasons and historical reasons, busts can and often do dwarf the preceding boom."