“In hindsight would it have been better to raise rates, flush out the bad debt, over-leveraged financials, and hit the bottom quicker than slow and painfully?”
Popular sentiment … the only problem is, macroeconomics 101 says that raising rates during the period of weakening economy leads to deflation and further weakening.
That’s okay if you can turn things around soon enough. But we have an example of Japan and an even more relevant example of 1929 that failure to inflate out of a bursting credit bubble results in a painful and long depression rather than a brief bottom. You flush out bad debt (and a lot of good debt), bad companies (and a lot of good companies), your unemployment rate spikes, domestic demand falls through the floor.
The way to go is to keep pumping money into the economy and to keep inflation at a healthy rate.
