Sheila Bair: Is The Fed Pushing Us Into Another Bubble?

Fortune:

FORTUNE -- In a recent series of college lectures, Ben Bernanke sounded a positive note, extolling the Fed's low-interest-rate policy and predicting sustainable economic growth. I want to believe him, but his words echo the confidence exuded by the Fed in late 2006 when it missed the housing bubble. Is it missing the bond bubble now?

Read the whole story at Fortune

Comments

[marinfan]

12:58 PM on 04/24/2012

The bond bubble bursts soon after the US loses its reserve currency status.

[WhoWins]

12:54 PM on 04/24/2012

Let me get this straight.....

the US Government is in debt to the fed....

We invade other countries for oil so we can sell it to pay back the fed. ....

The fed has all the money...

why don't we just round up the troops and invade the fed!!!

A MILITARY INVASION AGAINST THE FED WILL MEAN WE TAKE THE GOLD AND STILL OWN THE PAPER CURRENCLY AND NEVER HAVE TO PAY BACK INTEREST.

Stop invading poor countries, invade the fed!

[rudy in la]

11:54 AM on 04/24/2012

The headline has the tense wrong. It already has created a few differ bubbles. This time, there may not be a parachute for us all.

[Devaron Namsaar]

10:39 AM on 04/24/2012

It makes one wonder what a Honest government and no artificial money would be like... Imagine if the Fed (which is not federal at all) just disappeared and this country started printing its own money, like we did before the fed (anything prior to 1912)... We did alright without the European Bank Rothschild cartel and will do do just fine without them again. These people print their monopoly money faster then it can be spent and every time we turn around we discover they paid off someone else and gave the bill to the American people.
After nearly 100 years of this debauchery called the Federal Reserve and the strong arm tactics of the equally not at all governmental agency the IRS I believe its time we sent this mess back to Belgium or where ever it is the Rothschild's are taking up residency these days. Our nation has had its fill of this evil.

[Pearlswan]

01:27 PM on 04/24/2012

Anyone who has made serious progress on government greenback money has met their demise shortly thereafter. It's true what you propose but, who's going to do it is the more pertinent issue, imho. Power does not give itself up easily, my friend.

[Norma Ward]

10:32 AM on 04/24/2012

The recent rise in the stock market more likely has something to do with Helicopter Ben's expansion of the money supply.

Here is an article that shows just how the Federal Reserve has now expanded the supply of money at nearly exponential rates:

http://viableopposition.blogspot.ca/2012/03/exponential-growth-in-adjusted-monetary.html

All of that "cash" has to go somewhere.

[olephart]

08:03 AM on 04/24/2012

Those relying on the Fed to aid in a recovery are deluding themselves. The only thing the Fed has been able to do is re-inflate Wall Street, kill the incomes of retirees and savers and finance the speculators driving up commodity prices. The last two outcomes of Fed policies have actually held back the recovery by lowering incomes and decreasing purchasing power. Why have zero interest rates (made possible by printing money) if there is insufficient demand to warrant investment? Likewise low interest rates don’t entice borrowers to spend whose incomes have stagnated or disappeared. The Fed has also driven a stake into the heart of the recovery by announcing its plans to maintain low interest rates through 2015. This removes any imperatives from those anticipating investments to grow the economy. The Fed has turned let’s go ahead to let’s wait and see.

Bernanke has been clueless from the outset. He totally missed the housing collapse. In June of 2007 he was raising interest rates to cool the economy and by September he was lowering rates in a panic to thwart a collapse. He failed to recognize the underlying problems then and he is even now pushing on the rope in hopes that the other end will move.

[play7ball47]

11:58 AM on 04/24/2012

I totally agree. Great post, no wonder you have so many fans and just got another one.
If they could force the "Too big to fail," banks to offer fair interest rates on their credit cards, that would help the economy too. I don't understand how they can pay such low interest rates to their investors and charge 22% to more than 30% interest in some cases. It is GREED and that is just another nail in the coffin the USA is climbing in.

[Stilley Periodical]

08:03 AM on 04/24/2012

We have much bigger problems than low interest rates (since going off gold convertibility in the 70's, low interest rates are fine because foreign central banks just end up buying more bonds). The biggest problems I know of are:
1. Trillions in toxic assets owned by the Fed through the QEs
2. No accountability or meaningful new regulations to prevent future fraud
3. A jobless 'recovery' where the crooks take all the new money
4. An impotent congress

We need to stop looking to the Fed to fix the economy, that's the job of Congress.

[JubalTHarshaw]

06:14 AM on 04/24/2012

How can we believe anything from a "bank" that pretends that keeping interest rates hovering around zero percent is a sane plan for sustainable growth and a rational economic model going forward? It is time that real market forces were allowed to correct the markets that have been manipulated to rent votes and have been kept on life support since they failed to fix the problems.

[SamEasy]

04:44 AM on 04/24/2012

Wall Street and the Elite Mafiosa created the last bubble.............of course by using the greed factor all the way up the line...........and down. And the government is still totally manipulated by Corporations through the lobbyists that crowd the Halls of Congress.

And just for fun, what is the FED really? We know its a private corporation that is partially owned by other FEDS in other juristictions? How was it created........and which high-level business magnates were behind the planning of the legislation that began the FED in the first place? And what was their intention/objectives?

To control the flow and availablilty of the US currency just as was previously done in England, Europe, etc.

Research the birth of the FED. Interesting legislation that was passed somewhat covertly.

[BigBearcatBill]

03:21 AM on 04/24/2012

The sad thing about the bubble that did happen and if not corrected with rebounding house prices is it really affects employment for young people in many ways and one big way is that older people don't retire as early as they planned for many years if their home is a big part of their retirement plan to live off of when they sell it. My guess is for the average person that was about to retire and cash out on selling their home they are postponing that for at least 2-3 years and maybe more, which means their jobs will not be available for young people, which in turn hurts the economy again with unemployed skilled and educated kids not making good income and buying things.

[SamEasy]

03:36 AM on 04/24/2012

The plutocrats are in control, plain and simple. CEO/Exects are garnishing/absconding with huge remuneration packages while the cuts all happen to the workforce and producers.

Same old story but getting worse all the time. And sooner or later the capitalistic way will fall just like communism did. All empires fail as history has proven, so the current empire will crash as well.

[EllietheDog]

05:17 AM on 04/24/2012

I agree with everything you say in this post and the one above with the exception of the term "capitalist way"...we haven't had capitalism since the creation of the FED and those that manipulate the markets with the help of both the Ds and Rs in Congress.

We are much more a Fascist system than Capitalist system. And yes, we are a short time away from its failure.

[frank1946]

01:19 AM on 04/24/2012

Private Investment has moved away from the USA.

Investors have no confidence in American Government.

USA now sputtering with Counterfeit $$$

No Production to support the "Recovery" ?

[oftenon]

12:43 AM on 04/24/2012

Bonds? How about $670 TRILLION in same toxic derivatives that tanked the global economy? How about that's now 10 times the entire global GNP and they just succeeded in barring ALL fed oversight? How about they robbed the bank, broke the bank, corrupted the law and continue the binge 100 times over?

[Scurvydog74]

11:37 PM on 04/23/2012

Take the time to read "The Shock Doctrine" by Naomi Klein. The bursting of the next bubble is being planned as well as the last one was executed.

[Erdgeist]

11:16 PM on 04/23/2012

Well, yes. It is possible that Adam Smith's invisible hand will strike again. Let's look at the last huge bubble. Greenspan speaking to Rep. Henry Waxman (D) (Oct 23, 2008) had to admit that his economic model contained a "flaw" which led to the eventual collapse of the US economy in 2008. To this day most Americans don't know what the flaw was and that the flaw is still there for the most part. This mysterious flaw is closely linked to the belief of the infallibility of so-called "free markets"; more importantly, that they are believed to be fundamentally self correcting. There are no bubbles; people can't lose their money by investing in asset markets (e.g., real estate). The flaw, no doubt, is good old American greed which affects both rich and the not-so-rich. It keeps us forever blind and doomed to repeat history.

[LunaPark]

11:27 PM on 04/23/2012

Right now the invisible hand is trying to correct the situation. The invisible hand tried to force the top Federal Reserve agent banks into bankruptcy, and the hand is trying to correct the Fed policy with deflation. But our market is anything but free. Greenspan's model was Chicago school mercantilism that has zero to do with free markets and everything to do with soviet style central planning of the Federal Reserve.

[Erdgeist]

02:23 PM on 04/24/2012

Smith's "invisible hand" was about the unintended consequences of economic decisions and models. Even unbridled free markets have unintended consequences - just look at Haiti.

[oftenon]

12:47 AM on 04/24/2012

Greenspan twice repudiated his false belief that markets will police themselves; he did it in shameful contrition, in front of a Senate panel and cameras and it's in the Frontline documentary "The Warning."

[Hoosier451]

11:12 PM on 04/23/2012

Only if the definition of economic bubble has changed over the past few years.

Stock brokers getting burned because they overestimated the value of their assets isn't a bubble.

Consumers buying into something that has little to no value on a massively unsustainable scale is a bubble.

[Scurvydog74]

11:38 PM on 04/23/2012

Like derivative swaps?

[oftenon]

12:48 AM on 04/24/2012

yeah, like $670 TRILLION of em - equal to 10 times the global GNP - completely void of fed oversight