“The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future.”

-Ben Bernanke, Federal Reserve Chairman


Ben Bernanke, it seems, is changing his spots. He is now trying to prove that he is not Alan Greenspan. The technique? Spotting and popping asset bubbles before they do too much damage.

This is a major change for the Fed Chairman. (Note that the Fed first floated a trial balloon on this in May 2008).

Bernanke made his Fed bones, so to speak, back in 1999, when he presented a paper to Fed officials at their annual Jackson Hole meeting, arguing against the Fed popping bubbles. His argument? The Fed should focus on controlling inflation, not trying to manage the cycle of booms and busts.

That argument resonated with Easy Al.

Under Alan Greenspan, the Fed accomplished neither goal. The various Greenspan era bubbles such as tech-stocks, credit, oil and commodities boom, and of course, housing all ran their course unabted, with no interference from the Fed. Inflation — much higher from 1999 to 2007 than CPI falsely reports — also ran wild.

Here is Jon Hilsenrath of the WSJ:

“Fed officials used to think there was little they could or should do to prevent bubbles from inflating. For one thing, identifying bubbles with any certainty was deemed to be too difficult. And even if they could be accurately pinpointed, pricking them might do more harm than good. Raising interest rates to stop a bubble, for instance, could slow growth in other parts of the economy that were otherwise healthy.

The Fed’s main strategy instead was to mop up after a bubble burst with lower interest rates to cushion the blow to the economy and restart growth. That strategy was a key conclusion of Mr. Bernanke’s writings on the subject of bubbles when he was a Princeton professor, and again when he first came to the Fed as a governor in 2002. It was an approach embraced by his predecessor Alan Greenspan.

Now, Fed officials admit the stance didn’t work. They’re groping for alternatives. Of the two methods to prevent bubbles — using regulations to protect the financial system from excess and changing monetary policy by raising interest rates — Mr. Bernanke falls on the side of greater regulation, an idea he has advocated in the past.”

Incidentally, there were few doubters about the Bernanke/Greenspan plan of allowing bubbles to run wild. William Dudley, Goldman’s chief economist, now NY Fd Prez, was one of them. Dudley has said, correctly in my opinion, that it’s not as hard to spot bubbles as many economists believe: “I can identify at least five bubbles that one could reasonably have identified in real time.”

Greenspan & Bernanke were wrong, Dudley and myself are correct: You can actually identify bubbles in real time.

Back in 2008, I suggested the Fed pay attention to the following metrics:

1. Standard Deviations of Valuation
2. Significantly elevated returns
3. Excess leverage
4. New financial products
5. Expansion of Credit
6. Trading Volumes Spike
7. Perverse Incentives
8. Tortured rationalizations
9. Unintended Consequences
10. Employment trends

The details of each of these can be found here: Can the Fed Pop Bubbles (And If So, How)?


Fed Bubble_NS_2009
chart courtesy of WSJ


Policy Shift: Can the Fed Identify & Pop Asset Bubbles? (May 15th, 2008)


Can the Fed Pop Bubbles (And If So, How)? (October 22nd, 2008)


Fed Debates New Role: Bubble Fighter
DECEMBER 2, 2009


Category: Credit, Federal Reserve, Psychology, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Fed: We Will Pop Future Bubbles”

  1. JustinTheSkeptic says:

    I believe that different times call for different measures. The one shoe doesn’t fit all feet. The secret is to keep investors guessing, so that everyone doesn’t get on the same side of the trade too long. Perhaps transparency isn’t all it is cracked up to be?

  2. Free Market Extreemist says:

    Why arent they popping the GOLD bubble then?

  3. [...] Bernanke’s Fed as Bubble Fighter?  (TBP) [...]

  4. Marcus Aurelius says:

    Gold is reacting to the basic laws of supply and demand. Ask yourself, instead, what has happened to fiat currencies (interesting to note that one, like housing, tulips, or any other commodity, can be created to satisfy demand, and the other can’t).

  5. Machiavelli999 says:

    Yea, I was going to say the same thing Barry. Eventhough I think Gold is in a bubble, would it really make any sense to raise rates now to pop that bubble? Admittedly gold is a much smaller market than Nasdaq or Real Estate.

  6. davossherman@gmail.com says:

    I don’t think gold is a bubble, I think it is the resultant of the treasury and Fiat dollar bubble that Ben the f*cking moron created.

    How in the world could he detect bubbles to pop if the idiot missed the biggest bubble of all time?

    “Maybe” Ben the moron isn’t familiar with Minsky’s work on bubbles.

    The late Hyman Minsky, Ph.D., was a famous economist who taught for Washington University’s Economics department for more than 25 years prior to his death in 1996. He studied recurring instability of markets and developed the idea that there are seven stages in any economic bubble:

    Stage One – Disturbance:
    Every financial bubble begins with a disturbance. It could be the invention of a new technology, such as the Internet. It may be a shift in laws or economic policy. The creation of ERISA or unexpected reductions of interest rates are examples. No matter what the cause, the outlook changes for one sector of the economy.

    Stage Two – Expansion/Prices Start to Increase:
    Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice.

    Stage Three – Euphoria/Easy Credit:
    Increasing prices do not, by themselves, create a bubble. Every financial bubble needs fuel; cheap and easy credit is, in most cases, that fuel. Without it, there can’t be speculation. Without it, the consequences of the disturbance die down and the sector returns to a normal state within the bounds of “historical” ratios or measurements. When a bubble starts, that sector is inundated by outsiders; people who normally would not be there. Without cheap and easy credit, the outsiders can’t participate.

    The rise in cheap and easy credit is often associated with financial innovation. Many times, a new way of financing is developed that does not reflect the risk involved. In 1929, stock prices were propelled into the stratosphere with the ability to trade via a margin account. Housing prices today skyrocketed as interest-only, variable rate, and reverse amortization mortgages emerged as a viable means for financing overpriced real estate purchases. The latest financing strategy is 40, or even 50 year mortgages.

    Stage Four – Over-trading/Prices Reach a Peak:
    As the effects of cheap and easy credit digs deeper, the market begins to accelerate. Overtrading lifts up volumes and spot shortages emerge. Prices start to zoom, and easy profits are made. This brings in more outsiders, and prices run out of control. This is the point that amateurs, the foolish, the greedy, and the desperate enter the market. Just as a fire is fed by more fuel, a financial bubble needs cheap and easy credit and more outsiders.

    Stage Five – Market Reversal/Insider Profit Taking:
    Some wise voices will stand up and say that the bubble can no longer continue. They argue that long run fundamentals, the ratios and measurements, defy sound economic practices. In the bubble, these arguments disappear within one over-riding fact – the price is still rising. The voices of the wise are ignored by the greedy who justify the now insane prices with the euphoric claim that the world has fundamentally changed and this new world means higher prices. Then along comes the cruelest lie of them all, “There will most likely be a ‘soft’ landing!”

    Stage Five is where the real estate industry is today [2005/2006]. This stage can be cruel, as the very people who shouldn’t be buying are. They are the ones who will be hurt the most. The true professionals have found their ‘greater fool’ and are well on their way to the next ‘hot’ sector, like the transition from real estate to commodities now.Those who did not enter the market are caught in a dilemma. They know that they have missed the beginning of the bubble (gold, silver, and oil today [2005/2006]). They are bombarded daily with stories of easy riches and friends who are amassing great wealth. The strong will not enter at stage five and reconcile themselves to the missed opportunity. The ‘fool’ may even realize that prices can’t keep rising forever… however, they just can’t act on their knowledge. Everything appears safe as long as they quit at least one day before the bubble bursts. The weak provide the final fuel for the fire and eventually get burned late in stage six or seven.

    Stage Six – Financial Crisis/Panic:
    A bubble requires many people who believe in a bright future, and so long as the euphoria continues, the bubble is sustained. Just as the euphoria takes hold of the outsiders, the insiders remember what’s real. They lose their faith and begin to sneak out the exit. They understand their segment, and they recognize that it has all gone too far. The savvy are long gone, while those who understand the possible outcome begin to slowly cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away without notice. Whether the outsiders see the insiders leave or not, insider profit taking signals the beginning of the end (remember who has sold their rental properties?).

    Stage seven – Revulsion/Lender of Last Resort:
    Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap and easy credit or some unanticipated piece of news. But whatever it is, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in, prices start to tumble downwards, credit dries up, and losses start to accumulate.

  7. Robespierre says:

    Ben Bernanke is lying. Yes he will pop any bubble that forms… The problem is that he will deny that there is any bubble forming. This is all to appease the masses before confirmation. pleaseeeeee don’t be sooo gullible there are no spots changing here

  8. Doc at the Radar Station says:

    “Greenspan & Bernanke were wrong, Dudley and myself are correct: You can actually identify bubbles in real time.” – BR

    Yes, I agree with you and so does Dean Baker:

    I think the Fed saw the bubbles and let them burst. They weren’t willing to talk about them too much. I heard stuff like “irrational exuberance” and obtuse language like that, but nothing very direct.

  9. Rikky says:

    >>I don’t think gold is a bubble, I think it is the resultant of the treasury and Fiat dollar bubble that Ben the f*cking moron created.

    wrong, gold is in a bubble for sure and will be popping just like oil did when it came near $147 a barrel. you are applying rationale to a market that rarely abides by its principals. no one here knows all the underlying reasons why the prices are being bid up. also considering the size of the market its stability is far less certain and prone to easier manipulations. i won’t touch gold at these prices but that’s just me.

  10. Wes Schott says:

    …the fed has been trying to repress the gold price for years and have been slowly losing ground over the last 9 years

    witness the massive short position on the COT report almost exclusively JPM

    presently the commercials are on the wrong side of the trade…we will see if they can pop the bubble now

  11. V says:

    The gold (don’t necessarily agree it’s a bubble) bubble could easily be pricked whenever the time comes by the appointment of one Paul Volcker.

  12. dead hobo says:

    My anger towards those who run the financial world from the vantage points of government, management, and investment sales gets worse every day.

    Keeping this brief, Ben Bernanke undoubtedly has no plan other than to have a race with the bank of Japan to the bottom, using printed money and the monetization of the Federal debt. Japan recently announced new and aggressive monetary expansion initiative and BB will match it, I’m sure, after the Senate fails in it’s duty to protect the country and reappoints him. Asset prices will continue to rise as his printing press finds assets to prop. No part of this will aid job creation on Main Street. In fact, it will most likely put more out of work as oil prices rise and consumption falls as a result.

    Wall street management just sees his efforts as manna from Heaven and would pray at night to bless him if any had souls.They just want to see the printing presses keep blasting away at 110% so they can make bonus. Bernanke will continue to accommodate. He knows no other way and will leave it to whoever comes by in 4 more years to clean up his mess, just like Obama is dealing with GWB and his mess of the past 8 years.

    Investment sales professionals just see dollars on the sidelines that are not properly contributing to the 2% per year account management fees that so many sales professionals have a sense of entitlement over. I recently went through Hell getting an elderly relative to sell out and am still given crap over … this person’s investment pro keeps asking ‘What else are you going to do with it?’ My relative thinks the salesman is an investment God who really knows things I couldn’t possibly understand, and if he says it’s safe, then I must be full of it. I’m the one who gets to support that person when the market bubble of today bursts if the account falls in value. This idiot (a CFA) had my relative’s lowish 6 figure retirement account in about 20 funds. Fortunately, it’s all cash now.

    Congress should do the right thing and Send Bernanke home. Of course, they won’t because they need him to pay for their excessive spending.

  13. [...] Change of Fed strategy? Bernanke plans to pop bubbles – Big Picture [...]

  14. beaufou says:

    “The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future.”

    Asset price bubble.
    Mark to fantasy bank assets Ben?

  15. Wes Schott says:

    …and of capitalism…

    “These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan,” Alwaleed, 54, said yesterday in an interview on Bloomberg Television. “When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans.’”


  16. bsneath says:

    Gold may look like it is in a bubble, but this time its different!

  17. hue says:

    The Fed: We Will Pop Future Bubbles, After We Inflate Them

  18. Robespierre says:

    Gold is not a bubble. It is reflecting the race to the bottom by all major currencies. Competition devaluations anyone? I see trade wars looming. Wasn’t that a big issue during the great depression? Can Ben the scholar of the GD be missing this?

  19. ersatzjulian says:

    Wait a second, people. Ten years ago, Alan Greenspan gave his “Irrational Exuberance” speech. The market duly tanked, and everybody jumped down his throat, which was tantamount to telling him to focus on traditional measures of inflation and ignore any asset inflation. He duly compiled, and now that we are in the mess we are in, everybody is now lambasting the Fed for not pricking asset bubbles. Where is the justice in that?

  20. Mannwich says:

    He can start with the latest bubble (or mini bubbles) that HE just created. Good grief.

  21. Mannwich says:

    Welcome back, dead hobo.

  22. tradeking13 says:

    BR, you forgot to include the part of the Bernanke quote where he says he supports a strong dollar, too :)

  23. HCF says:

    Gold is not in a bubble yet, but it may be on the cusp of getting into that territory. The average person still believes that paper money is “real” money and you don’t hear too much clamoring by employees that precious metal funds be added to their 401k options, etc. Remember the last two bubbles? Lots of everyday Americans wanted to put 100% of their retirement into tech stocks and then into real estate. We’re not at that point yet with gold.

    Incidentally, there is a very simple way to pop the “gold bubble.” It’s called: stop printing so much money! Yes, it’s simple, but it’s a also VERY painful (as Paul Volcker can attest to). The problem is, with that pain means a high probability that policymakers will not do the right thing.


  24. wally says:

    Interesting that gold is on the chart… but not oil. I’d disagree with both decisions.

  25. if We aren’t looking at the FedRes, and its ‘policies’, through the Lens: “Economy Ramp n’ Crash”, We’ll never understand the basis of: “I sincerely believe … that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    ATTRIBUTION: Thomas Jefferson (1743–1826), U.S. president. Letter, May 28, 1816, to political philosopher and senator John Taylor, whose book An Inquiry into the Principles and Policy of the Government of the United States (1814) had argued against the harmful effects of finance capitalism.
    BIOGRAPHY: Columbia Encyclopedia.

    Direct link: http://www.bartleby.com/66/29/30729.html
    and, from the “Comments”..
    The First National Bank of the USA was founded a few years after the Constitution was ratified. When Jefferson became president, he promptly refused to renew their charter seeing how the system was sucking the wealth from the citizens. Look folks, Jefferson is no fool, and neither are the bankers. The truth is that the government could issue its own currency interest free! And 2 presidents did — right before they were shot dead — Lincoln and Kennedy. All the notes issued by Lincoln and Kennedy were promptly recalled shortly thereafter. No president has dared to try it again…
    — J.P., New York City
    Thank you, J.P. Do you think any history or economics teachers dare teach this in the public schools? Can Hollywood or even Sundance produce such a movie? When will we ever learn?
    — Sharyn, Florida
    And who do you think owns the majority of shares in the Federal Reserve? Foreign Banking dynasties (Rothschilds own 51-52 percent of the Fed while Rockefellers own around 7 percent)own the Fed and rake in its profits while the American people own zero percent – but contribute 100 percent of the profits!
    — John-Douglas, Nassau
    Sharyn, there is a movie called Money Masters and I have it on my website http://www.truthstream.org . It goes into great detail on how the federal reserve came to be and how it has been nothing but disaster – intentionally.
    — Scott H, Apopka
    maybe, it’s time to step away from the Soma..

  26. Mannwich says:

    @HCF: I can’t imagine that sending more troops into Afghanistan and spending even more money we don’t have in that quagmire helps the “value” of the dollar either.

  27. call me ahab says:


    man- i was just thinking a day or two ago that i hadn’t seen a post from ol’ Dead Hobo in a while-

    welcome back to the echo chamber (-:

  28. tsk tsk says:

    Assuming the Fed can identify and purposely pop bubbles does the threat alone slow a bubble’s growth? Or does irrational exuberance inflate it faster knowing the Fed can step in at any time?

    Also, does popping a bubble in asset A unintentionally lead to a bubble in asset B?

  29. Mannwich says:

    I guess if the Fed is responsible for all the recent bubbles, they SHOULD, after all, be able to identify them, no? Or is that too much to ask?

  30. HCF says:

    @ Mannwich:

    I think we live in an “opposite day” world, where policymakers all “favor” a strong dollar, and spending trillions on state-run healthcare and useless wars “saves” us money….

    I certainly have no confidence that they will pop the “gold bubble”


  31. Adult Franklin411 says:

    The joke about monetary policy is the myth that it can be tightened as easily as it can be loosened. But the way everything gets hyper-leveraged there’s a huge multiplier effect in notional values. And when swaps can be used as a proxy for capital reserves… damn.

    I agree that Bernanke’s bubble-popping rhetoric is just that. Ditto the comment above that the Fed would have to recognize the bubbles to act on them. And why would the Fed want to prevent the financial priesthood from doing god’s work and pumping the lifesblood of the world?


  32. davossherman@gmail.com says:


    The unfunded liabilities are 106 trillion – and the morons in DC are adding more in the form of socialized health care.

    Our National Debt is 12 trillion.

    Gold in a bubble? NO! Currency in the sh*tter YES!

    There is NO fixing this with a Volcker – or anyone else. The bottom line is we have Arthur Anderson accounting at the BEA and the BLS, we are as insolvent as Enron and with more off balance sheet crud. The US dollar gig is up. Gold will go parabolic. This is nothing.

    Our yearly deficit is now massive, we take in 2 trillion and p*ss away 4 trillion and we can’t get loans to cover that deficit so Bernake prints funny money and sticks our great grand kids with the tab.

  33. [...] Can the Fed shift gears and become more proactive in combating financial bubbles? Not unlike Wayne Gretzky. (WSJ, Real Time Economics also Big Picture) [...]

  34. insaneclownposse says:

    Seems like gold is in the early stages of some type of mania, but it could just as easily be reflecting the complete loss of confidence in the fiat currency system. The problem is that the U.S. is insolvent. This is painfully obvious to the markets. Unfortunately the U.S. can’t default as this would literally destroy every single financial institution in the world instantaneously. The U.S. can print money though and this is the least painful solution to the problem. So, against that backdrop, why would anyone trade their gold for paper for more than a short-term trade?
    The secular trend is up for gold and this will provide support for quite some time.

    If you want to talk about a bubble – a hallmark of bubbles is that financial products are created just to take advantage of the distortion. An enterprising shop just launched GDXJ a couple of months ago. This is an etf that holds junior gold miners, which historically have appreciated tremendously during gold manias. I bought some recently.

  35. Andy T says:

    What do you think the Fed could have done about the bubble created by the GSE’s over a 20 year period? From 1983 to 2003, the GSE ‘portfolio’ increased from 6.5% of the GDP to 33% of the GDP. Trillions of dollars were pumped into the economy via these STATE created agencies with a mandate to ‘expand homeownership.’ This was the back bone and base of the greatest real estate bubble of all time.

    What would you have done about that?

    The so-called bubbles you speak of here are mole hills compare to that Mt.Everest of a problem that “We the People” created with some of the worst domestic policy one could have devised.

    It ain’t all about “Easy Al,” though we know he’s an easy target….

    1. Standard Deviations of Valuation (What st.dev. rate would you use?)
    2. Significantly elevated returns (What is “signficant?”)
    3. Excess leverage (What is “excess?” )
    4. New financial products (Which products are good and which ones are bad? Who decides?)
    5. Expansion of Credit (How much expansion is good and how much is bad? Who decides?)
    6. Trading Volumes Spike (What’s a spike? Who will define that?)
    7. Perverse Incentives (What is perverse? Who decides what is ‘perverse?’)
    8. Tortured rationalizations (One man’s rationalization is another man’s truth. Who decides?)
    9. Unintended Consequences (They’re call ‘unintended’ for a reason…)
    10. Employment trends (????)

    To create a system of control devised by ‘man’ to control ‘man’s behavior’ assumes that the person devising the system of control is perfect and all-knowing. Good Luck with all that….

  36. Adult Franklin411 says:

    Andy, if by “We the People” you mean the special interests that have captured the policy-making around the financial industry and regulation (or not) thereof for 30 years, then I’m with you.

    Like our old friend Smedley Butler knew from his days as the military arm of United Fruit company, we’re very naive to think that agencies of gov’t function of the people, by the people, for the people. Unless you define “people” as rich guys in the back room, that is.

  37. flipspiceland says:

    A corpse, wrapped in mummy paper, would be a better Fed chairman than the round, bald, be-bearded, tubby, short bonehead that Bernanke has proved himself to be. No doubt he has used his position to further protect and enrich a handful of the members of his tribe at the expense of the rest of the world but these homilies to him are lame.

    I know that BR has a thing for Benny, but these quotes of that are posted here to redeem Benny’s reputation are hollow, desperate, and reek of elitist symp.

  38. sickmint79 says:

    so is gold in a bubble? who knows? i don’t think it’s that easy to spot. i know a good way of preventing bubbles though – not setting interest rates lower than a market would set them and producing the source of easy credit that bubbles need to go from froth into mania. of course, then we’d have to admit that price controls on money and credit work no better than those on milk and batteries.

  39. tt says:

    like a commenter stated, when greenspan even hinted at bubble in mid 90s irrational exuberance utterance all the world came down on him. there is not a shot in hell they will pop a bubble. i also think it is stupid. i personally would rather have the fed just print money like crazy and let us little people with our animal spirits bid prices up on what we desire from gold to race horses to artwork, than wish for bernanke or obama or palin or nixon using price control board and trying to manage so called bubbles.

    reading a wonderful book now by charles goyette, dollar meltdown. last night i read the section on nixons price controls from 71-74. guess who was in charge of pricing board. rumsfeld assisted by cheney.

    i personally don’t want criminals like that deciding what prices are too high. sorry barry ritholz, you are very smart, have a wonderful board, but are completely wrong on this buddy.

    ps fed reserve is gearing up to be put out of business. they are shoveling all the bad stuff and will stick it to the taxpayer lumps. they will be out of business in a decade. and reconstituted with more power in another 5 or 10 years hence. the way the world works. see who voted for the original aldrich plan in 1913. the republicans all voted against it. the dems watered it down and did not give enough power to the republican bankers at the time . the current fed is the result of prairie populists watering down what the big boys originally wanted. they will get there way eventually.

  40. “…the current fed is the result of prairie populists watering down what the big boys originally wanted. they will get there way eventually…”


    would you care to draw that out some? you’re not, merely, referring to the artifice of the 12 ‘branches’, are you?

  41. tt says:


    sure. i am not referring to any article. my reading of history books and sources is that the original plan for the fed was the aldrich plan. a much more truly independent fed in nyc alone, with no gov oversight to speak of. endorsed and cobbled together by the republican bankers of 100 years ago with their senator aldrich as their point person. i think he was rockefellars son in law. the prairie populists of the heartland and the south Dems changed the structure to be in DC with much more gov oversight. the final bill as i understand was voted for by the populist Ds and against by the Rs. so what i am guessing is that since this is the 3rd central bank usa has had, i think the next one will be more banker friendly. i concur with jim rogers that this fed will be bankrupt in 10 years either on it’s own or put out of business by the congress. so i think the boys know this is a risk, so why not dump all their bad crap onto the fed books now. the idiots in congress might close them eventually, and take it all into the treasury. and there is no reason the treasury cannot do all the functions of the fed does now. not a problem at all. so the bankers shift all the bad paper onto treasury. and what i was guessing was that after another decade or so of no independent central bank, another one will be formed. only this time, no more mr. nice guy. does that seem clearer. hope so.


    ps buy gold/silver. it is such a layup.

  42. flipspiceland says:

    “…The real problem is Mr. Bernanke’s record before the panic, with its troubling implications for a second four years. When George W. Bush nominated the Princeton economist four years ago, we offered the backhanded compliment that at least he’d have to clean up the mess that the Alan Greenspan Fed had made. That mess turned out to be bigger than even we thought, but we also didn’t know then how complicit Mr. Bernanke was in Mr. Greenspan’s monetary decisions.

    Chairman of the U.S. Federal Reserve Ben S. Bernanke .Now we do, thanks to the release of the Federal Open Market Committee transcripts from 2003. They show (see “Bernanke at the Creation,” June 23, 2009) that Mr. Bernanke was the intellectual architect of the decision to keep monetary policy exceptionally easy for far too long as the economy grew rapidly from 2003-2005. He imagined a “deflation” that never occurred, ignored the asset bubbles in commodities and housing, dismissed concerns about dollar weakness, and in the process stoked the credit mania that led to the financial panic.

    This, too, might be forgivable if Mr. Bernanke had made any attempt in recent months to acknowledge the Fed’s role in the mania. Treasury Secretary Tim Geithner, Dallas Fed President Richard Fisher and others have conceded that monetary policy was too loose. How central banks can minimize, if not prevent, asset bubbles without inducing recessions would seem to be a subject for candid Fed debate.

    But Mr. Bernanke and Vice Chairman Don Kohn have formed an intellectual moat around the Fed, blaming the credit bubble on the “global savings glut” that they themselves helped to create. They are the Edith Piafs of central banking, regretting nothing.

    All of this bears directly on how the Fed will operate over the next four years. We are now in another period of extraordinary monetary ease. Mr. Bernanke is assuring the world that, this time, he knows how and when to start removing this stimulus, even as he also promises that the Fed will remain easy for months to come. The guideposts the Fed claims to follow on policy—the jobless rate, “resource utilization”—also remain the same. Price signals, especially the value of the dollar, count for much less in this Fed’s decision-making.

    Earlier this decade, the Fed had 20 years of sound-money history as a source of credibility. The world’s investors were willing to give the Greenspan Fed the benefit of the doubt—too much doubt as it turned out. But now, after the mania and panic, investors are unlikely to show such forbearance. That’s already clear in Asia, where the falling dollar is creating monetary distortions, and investors are bidding up assets and currencies on a bet that the dollar is in for further declines. Sooner rather than later, Mr. Bernanke will have to tighten money even if the U.S. jobless rate remains higher than everyone would like.

    The Fed chairman has shown he knows how to ease money, and creatively so. But that is the easy part of his job. The hard part, the time when central bankers earn their fame, is when they have to take the money away. We see little in the chairman’s policy history or guideposts to suggest he will be willing to endure the criticism that will come with tightening money amid a lackluster recovery, if that is what is required to protect the dollar or prevent an inflation outbreak.

    The political irony today is that even as Mr. Bernanke is cruising toward confirmation, the Fed as an institution is under its most sustained political attack in two generations. The political class is especially riled about the Fed’s forays into fiscal policy. While that is understandable given the last year, the response to this action should not be to put the Fed under even greater political control from Congress. That is the Argentinian solution.

    The better response is to hold policy makers accountable for their actions, including chairmen of the Federal Reserve. At this monetary moment more than any since the late 1970s, the Fed needs a hard-money chairman with the courage and credibility to resist the temptation to escape from the consequences of the last bubble by floating another one.”

    Courtesy: WSJ

  43. The Ghost of Y2K says:

    I believe gold is entering a bubble blow-off phase probably to hit ~$1500 in the next 3-6 months, I’ve made some investments accordingly, but don’t fool yourself. Gold is not the panacea of long term investing.

    -Much of the demand for gold has been artificial, jewelry demand for gold has been declining while Gold ETFs and Gold producers closing off hedge books have been the major sources of increased demand, not central banks and 1.3 billion Chinese people. Gold producers hedge books have pretty much closed now, and ETF investment demand can remain irrational for longer than I can remain solvent.

    -Gold is a fiat good gold, unlike copper and silver, is intrinsically useless for anything other than jewelry. While it is difficult and expensive to mine more gold, there is a major source of gold controlled by the same people who are printing money and throwing it out of helicopters, the central banks.

    -Gold is not money and essentially hasn’t been since the beginning of the 20th century, go and try to buy anything other than dollars with a gold bar or coin. Of course gold may be a good thing to hold if the world economy slides into a dark ages style period, but the end of the world is more often predicted than accomplished.

    -Gold isn’t even the typical precious metal based currency, throughout history silver has been the usual standard in coin based currencies, not gold, once silver became de-monetized it depreciated in real value for years.

    Gold may get to be a bubble, but when it does, don’t believe the hype!