Friday, March 1, 2013

Joseph Salerno on Bernanke's Asset Bubbles

While I realize that Paul Krugman insists that only "unregulated" markets can create asset bubbles (and that government plays no role in creating them), Joseph Salerno begs to differ, saying that the U.S. Government and its Federal Reserve System is "addicted" to a bubble economy.

Helicopter Ben Runs Out of Ideas for Creating Money

Ben Bernanke confided on January 14 that he is unaware of any new method of stimulating economic growth. Bernanke said: “As far as I’m aware, there’s no completely new method that we haven’t [already tapped].” So Helicopter Ben has run out of innovative and unconventional ways to create new money. Lest you be tempted to breathe a bit easier, however, rest assured that the now conventional method of quantitative easing, involving the Fed’s monthly purchase of $85 billion worth of mortgage-backed and U.S. government securities, seems to be working just fine according to Bernanke and he foresees its continuation. Noting the stubbornly high unemployment rate combined with the low inflation rate in the U.S. economy, Bernanke stated, “That is the case for being aggressive, which we are trying to do.” Although he is “cautiously optimistic,” he does promise to closely monitor the risks, efficacy, costs, and benefits of this inflationary policy.

I guess the rapid asset price run-up in stock and commodities markets, which are nearly back to financial bubble levels, and booming farmland prices do not count in Bernanke’s benefit-cost calculus. More likely, Bernanke accounts them as a benefit, which, via the “wealth effect,” will induce another debt-driven consumption spree on the part of the American public that will stimulate economic growth, i.e., create another bubble economy.

Read the Entire Article Here


Dinero said...

is it really Bernanke's fault. As long as he has to work to the "maximum employment" mandate rather than a "sound money" mandate, will he not have to keep rushing around stimulating this or stimulating that.

The maximum employment mandate is a political policy, it is a contrivance - not a required policy of running a banking system. For example - Here in the Uk the BoE does not have it.

Bob Roddis said...

In 1977, Congress amended The Federal Reserve Act, stating the monetary policy objectives of the Federal Reserve as:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."

Money "growth" "commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates" means that the Fed should do nothing ever. The "mandate" is actually a directive to do nothing ever.

Bob Roddis said...

In 2002 Krugman said that,

"Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

In 2005, Krugman admitted that the Fed *had* created a housing bubble and that it wasn't surprising because...

"After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market."

But by 2010 Krugman completely changed his story and tried to absolve the Fed by saying...

"These considerations suggest that it would be wrong to attribute the real estate bubble wholly, or even in large part, to misguided monetary policy."

Thanks to "Locus"

Mike said...

The Fed exists to preserve, protect and advance the interests of the bankers. Everything else is theatre.

William L. Anderson said...

Well said, Mike!

Pulverized Concepts said...

Agriculture in the US is light-years away from a free market and USDA policy is more important to farming than rainfall, crop genetics or mechanization. As long as government subsidies and mandates exist, investments in cropland will appear to be wise. Until they're not. Then even more money will be enpixelated to sustain the US "family farm".

Todd S. said...

I think readers of this blog would like John Hussman's weekly comment this week. Hussman is left of center, but he discusses a key concept that Keynes wrote about; speaking of which, can someone post WHY Keynes believed the amount of investment is fixed? It's about a 15 minute read, but I think you'll find it worth your time (and Hussman is no fan of Bernanke). Full disclosure: I own a little of one of his funds.

William L. Anderson said...

Thanks for posting that, Todd.

I've been kind of taking it easy this week as my day job takes over. That and four teenagers in the house.