Bernanke Rethinks Bubbles But Still Gets It Wrong; Sign The Petition To Dump Him

Bernanke keeps piling on proof of how inept he really is. After arguing for years that it is best to leave bubbles alone then take care of them after they pop, he now thinks that "maybe" he was wrong. He was then and still is because he does not even know what causes bubbles.

Please consider Fed Debates New Role: Bubble Fighter

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.

"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," Mr. Bernanke said in answer to a question after a speech in New York last month.

Playing the interest-rate card, in contrast, is considered by many to be a more aggressive and risky move. On Tuesday, Philadelphia Fed President Charles Plosser said interest rates were "a very blunt instrument" to thwart a possible bubble. He said raising rates could "affect all other asset prices at the same time."

Bernanke Amazingly Inept

Bernanke keeps proving over and over again how inept he is. The only source of bubbles is the Fed in conjunction with fractional reserve lending.

Logic would dictate that it is only possible to stop bubbles with regulation if regulation is the source of the bubble. Pray tell exactly what regulation (other than getting rid of the Fed and FRL) would have stopped the dot-com bubble?

I suppose in theory enough regulation might have stopped a housing bubble (I doubt it in practice), but even if it did, the excess credit stemming from too loose monetary policy would simply have found another home and another bubble.

Bernanke is trapped in academic wonderland. He is immune to both logic and real world practical experience and instead relies on beliefs and formulas already proven to have failed at every chance.

The problem then is the same as the problem now: monetary printing and too cheap money. The only regulation that makes any sense as a cure is to get rid of the Fed and its bubble blowing tactics.

The Inept Want More Power

Instead, like all failed regulators, and in strict accord with the Fed Uncertainty Principle the Fed is angling for more power to cleanup the mess it made

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Sign the Petition.

This is unlikely to help, but it sure cannot hurt. Bernie Sanders says We Need a Change at the Federal Reserve

Mr. Bernanke did not prevent the buildup of as massive speculative bubble which dragged this nation, and the world, into the deepest recession since the 1930s. Since Mr. Bernanke took over as Fed chairman in 2006, unemployment has more than doubled and, today, 17.5 percent of the American workforce is either unemployed or underemployed.

Not since the Great Depression has the financial system been as unsafe, unsound, and unstable as it has been during Mr. Bernanke's tenure.

We believe it is time for a new Chair at the Federal Reserve Bank. Mr. Bernanke should not be appointed to another term as Chair.

Please click on the previous link and sign the petition to get rid of Bernanke.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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