Posted on 12/18/2008 2:52:41 AM PST by TigerLikesRooster
Fed unleashes greatest bubble of all: John Kemp
Wed Dec 17, 2008 7:08am EST
-- John Kemp is a Reuters columnist. The views expressed are his own --
By John Kemp
Like the sorcerer's apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.
Now the Fed's decision to cut interest rates to between zero and 0.25 percent, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in the U.S. government debt.
THE ASYMMETRIC EXPERIMENT
Bubble mania is no accident. It is the direct consequence of the Fed's asymmetric response to shifts in asset prices. Pressed to "lean against the wind" and adopt counter-cyclical interest rate and credit policies in the asset market, senior Fed policymakers have repeatedly demurred.
Led by Bernanke and Greenspan, officials have argued it is too hard and subjective to identify bubbles until afterwards, and not the Fed's job to second-guess asset allocation decisions of professional investors.
Even if bubbles could be identified, they argue, pricking them would require swinging rate rises that would inflict widespread damage on the rest of the economy.
Far less damaging to allow asset markets to follow their natural cycle and stand by to cut interest rates sharply, supply liquidity and contain the fallout when the bubble bursts.
But the Fed's asymmetric policy response to rising and falling asset prices (colloquially known as the "Greenspan/Bernanke put") directly led to much of the excessive risk-taking which has humbled the financial system over the last eighteen months.
(Excerpt) Read more at reuters.com ...
Ping!
Zero wealth.
Zero chances we'll get out of this mess in the coming four years of the zero messiah...
Why don’t these guys ever complain when the yield curve is inverted?
But now there will be a tax raising Democratic President and Congress. Might they simply dry up excess liquidity by raising taxes? Economics oriented Freepers, please comment.
He’s going to print money before he raises taxes. That should cause inflation. I don’t know how to comment on the “excess liquidity” issue. It seems like wall street is working hard to dry up that pool. I’m just an “armchair economist” though so what do I know (I know enough to be wary of banks, governments, and giant bailouts).
I don't pretend to know how to control the economy. Too bad the Fed and Congress think they know.
When the US government defaults on its debt, it does it by printing money and, thus, destroying wealth accumulation. I’m not a gold bug but one has to consider options.
Buy Guns and ammo... the hoard will kill you and take your gold.
LLS
>>Led by Bernanke and Greenspan, officials have argued it is too hard and subjective to identify bubbles until afterwards, and not the Fed’s job to second-guess asset allocation decisions of professional investors.<<
Just a few days ago Ben the printer was saying that he would be able to catch the swing from deflation to inflation and would be able to prevent hyper inflation. Did he hire some new trend observers?
People with homes that are paid for and no debt are the ones best positioned to ride this storm. Of course, that leaves a lot of folks in the maelstrom.
Zero did say that the Wold had a wealth inequality problem. If our wealth can be inflated away, problem solved.
That's certainly true but what if you cannot pay the annual property taxes? You will still lose your home.
“That’s certainly true but what if you cannot pay the annual property taxes? You will still lose your home.”
Well, if one’s taxes equal the value of their home, you are right.
Yes, I agree with you. Just this past week I have been making preparations to pay mine off and prepay five years of property taxes.
If you prepay at today’s rate, and your local taxing authority triples the rate next year, will you be on the hook for the difference?
Jacking up property rates to the sky will be govts last ditch effort, because it risks total social rebellion.
Jeeze. Everyone sounds like Ron Paul these days. What a bunch of posers.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.