I have a post over at Commentary’s Contentions Blog that may interest you.

Fed Chairman Bernanke is up for reappointment next year, and the questions are beginning in earnest about how he’s handled monetary policy. Some of the best-informed people out there insist that the cause of the housing bubble and the subsequent crash was an episode of low interest rates during 2003 and 2004, as the U.S. economy was recovering from the post-9/11 recession. Alan Greenspan was the Fed Chairman at that time, but Bernanke was prominent among the Fed’s governors, and fully supported the loose policy.

It’s always fun to look into the past for someone to blame, but the more important question is what this means for monetary policy going forward. To a careful observer, there can be no question that the crisis had many causes, and was greatly exacerbated by complex interactions that no one could have predicted.

For their part (and I agree with them), Bernanke and Greenspan have both pointed many times to the “savings glut,” a vast accumulation of dollar reserves by the governments of emerging nations. Its effects have been apparent since the mid-Nineties, as the excess capital reduced interest rates and excess production reduced inflationary expectations. Did the savings glut make possible the burst of financial technology that greased the skids of the financial system? No, it didn’t. But without the glut, there would have been far less incentive to find clever (and ultimately unsustainable) ways to increase investment yields.

Read the rest here.