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.

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