[dragontamer]

But the housing industry is barely recovering from a "liquidity trap" in 2008! People weren't selling houses because they expected home prices to constantly go up. You had people flipping homes and adding no value to them. Eventually, the market crashes after too many people buy homes that they didn't need...

Note, its not that people "don't sell homes", it is that homes are prone to rampant speculation that can bring down the entire industry.

His claim is that a fiat currency (ie: Dollar), can repel the liquidity trap with monetary policy. IE: Carefully controlled inflation or deflation.

[drcode]

OK, you made some good points I will have to think about more. I would think the type of deflation we're discussing had only a small role to play in that crisis, but I admit it probably played some.

Of course the irony is that monetary policy causing unreasonably low interest rates (i.e. controlled inflation) was a large factor of that crisis as well.

[dragontamer]

Got an argument to back that up?

Why don't you go through the charts. Find me the year that the Fed caused too much inflation, and then tell me how much the dollar was inflated that year.

I doubt you can, because during the housing crisis, the dollar experienced deflation. The Fed acted swiftly, although not swift enough! The dollar failed to hit inflation targets in 2008-2009 as we experienced -0.4% inflation.

For the 2009 to 2010 years, we only experienced 1.4% inflation. Both years, we missed inflation targets of 3%. Worse, the dollar deflated in value in one year.

Every other year, inflation has been the same as always: ~3% since 1990.

Economic data does not match your words. The US hasn't had inflation over 4% for the last 22 years. There is no inflation problem.

If the goal of ~3% inflation is a poor goal, then tell me why.

[drcode]

"The housing bubble was fundamentally engendered by the decline in real long-term interest rates"- Alan Greenspan

[dragontamer]

I'm happy you're patting yourself on the back for your knowledge of a single quote by a single economist. But you still need to make a compelling argument instead of just saying "Things are just so."

See how this game is played?

EDIT: Well, that was probably too mean. So lemme ask you this.

Since you agree with Alan Greenspan so much, please tell me what caused the long-term decline of interest rates. HINT: it wasn't the fed, according to Greenspan. After all, the Fed raised interest rates in 2004 and 2005.