US central banks may need to burst bubbles: Bernanke

[OhioChick]

Source: Reuters

19 Oct, 2011, 01.17AM IST, Reuters

BOSTON: Federal Reserve Chairman Ben Bernanke said on Tuesday that central banks may need to resort to monetary policy to combat asset bubbles, although regulation should be a first line of defense.

"The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out," he said at a conference at the Boston Federal Reserve Bank.

Bernanke did not directly discuss the outlook for the U.S. economy or monetary policy in his speech, which offered thoughts about how central banking might shift in the wake of the financial crisis.

The crisis has brought the goal of financial stability into co-equal status with macroeconomic health as a central banking goal, elevating the importance of regulation to guard against systemic risks, Bernanke said.



Read more: http://economictimes.indiatimes.com/news/international-business/us-central-banks-may-need-to-burst-bubbles-bernanke/articleshow/10407846.cms

[DallasNE]

1. Too Bad Greenspan Wasn't On Board

When stock prices started to spike with the internet bubble much was based on buying those stocks on margin. Greenspan should have decreased the amount that could be borrowed. Instead he left the margin at 50% and the bubble just kept building until it finally burst. Housing would have been a little more difficult, especially since criminal activity, deregulation and lack of enforcement all contributed to the scope of the problem and out of the scope of Fed authority -- unlike the stock bubble.

[No Elephants]

18. Clinton re-appointed Greenspan, much as Obama re-appointed Bernanke.

[Demeter]

2. He's joking, Right?

Bernanke is going to choke the life out of the economy ala Volcker? In an election year? In a Depression?

Just nationalize the top 20 banks and throw the banksters in jail, Ben. Like you should have done in 2008.

[valerief]

4. Badda bing! nt

[KamaAina]

8. I'm not even sure there are 20 top banks anymore

a graphic's been making the rounds showing how 37 good-sized banks were whittled down to four. :scared:

[w4rma]

17. Yup. And Obama picked him for our Federal Reserve representation. (nt)

[L0oniX]

3. Move your money to a credit union by Nov 5.

[sarcasmo]

14. +1 and I have been telling my neighbors to do the same thing.

[msongs]

5. or they could dump all the speculators in the ocean for causing most of the $$ troubles nt

[NickB79]

7. Gaa, the poor sharks, having to eat that crap! nt

[PoliticAverse]

6. Moot point if you have a Fed chairman that can't recognize a giant bubble. n/t

[JVS]

10. To be fair, that would have been Greenspan. who was in charge from 1987-2006

[PoliticAverse]

11. Bernanke also didn't think there was a housing bubble...

(From: http://www.cepr.net/index.php/bernanke-greatest-hits )

7/1/05 – Interview on CNBC
INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

.

[No Elephants]

19. Yes, but also Bernanke, who was in charge from 2006 to 2008 and beyond.

Clinton re-appointed Greenspan and Obama re-appointed Bernanke.

Thanks to the DLC type Presidents, we have had the appointee of St. Ronnie or Baby Bush in charge of the Fed since 1987.

Edited to add "and beyond" to the subject line.

[lib2DaBone]

9. Nationalize the FED...

Let Too Big To Fail.... Fail.

Don't throw any more money down the rat hole.

[marasinghe]

12. people who live in bubbles .... etc.

:freak:

[sarcasmo]

13. Let them fail or nationalize them, don't just keep bailing the bastards out.

[Owlet]

15. Too late: latest bailout in place

"This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers.  Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties.  Now the Fed and the FDIC are fighting as to whether this was sound.  The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.  You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan.  Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon.  Bernanke is absolutely insane.  No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks.  His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began."

I'm off to buy some Barber silver dollars.

link here

[sarcasmo]

16. Stocking up the pantry extra heavy this winter.