Fed Chief Edges Closer to Using Rates to Pop Bubbles

Posted on Monday, January 04, 2010 1:55:00 PM by Track9

ATLANTA -- Federal Reserve Chairman Ben Bernanke cracked the door open a bit more to the idea of raising interest rates if a new financial bubble emerges.


He also mounted a vigorous defense against critics who say it was the Fed's low-interest-rate policies over the past decade that caused the last housing bubble. Instead, he said, the problem was lax regulation, which permitted banks to issue a slew of exotic mortgages that households later had trouble paying. "We must be especially vigilant in ensuring that the recent experiences are not repeated," Mr. Bernanke said in a speech Sunday at the American Economic Association's annual meeting here. Better regulation is his first line of defense against future crises. But the Fed also needs to "remain open" to using the blunt tool of higher interest rates to avert or pop future asset bubbles, Mr. Bernanke said, particularly if other approaches aren't working.


(Excerpt) Read more at online.wsj.com ...


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By 'future asset bubbles' he means our enormous debt and approaching insolvency no doubt. Pure double speak.

1 posted on Monday, January 04, 2010 1:55:01 PM by Track9
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To: Track9
unlikely to happen. If they’re not going to raise rates now, then they won’t ever



2 posted on Monday, January 04, 2010 1:56:56 PM by 4rcane
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To: Track9
This is just jawboning. The housing market would have MORE foreclosures with the Alt-A loans up for resets this year and next. NOT going to happen.



3 posted on Monday, January 04, 2010 1:59:45 PM by TruthConquers (Delendae sunt publicae scholae)
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To: Track9
So he’s planning on popping the next debt-for-foreign-products scheme (Ponzi scheme). That’s a good idea, but we’ll see if he would really do it.



4 posted on Monday, January 04, 2010 2:14:56 PM by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote.)
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To: Track9
In other words, if you’re on the fence about your potential dream home, get off. Between Fed and the Chinese, rates are likely to explode.



5 posted on Monday, January 04, 2010 2:15:56 PM by montag813
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To: 4rcane
That seems to be the consensus. I know it would utterly sink them for the ‘10 elections but we’re so far in debt and it’s such a systemic issue I wonder how much longer this un-reality can last.



6 posted on Monday, January 04, 2010 2:23:46 PM by Track9 (The measure of a good education is knowing what truly sets you free)
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To: montag813
"rates are likely to explode."
That's my sense.. I don't see how they can keep this illusion going at will and it makes me nervous as I'm sure it does those at the Fed


7 posted on Monday, January 04, 2010 2:41:06 PM by Track9 (The measure of a good education is knowing what truly sets you free)
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To: Track9
So now we’re back to Greenspan’s jihad to deflate the dot-bomb equity bubble with the blunt axe of interest rates, which then crumped the whole economy.

Gotta love these clowns at the Fed. They’re just a veritable fountain of wisdom.



8 posted on Monday, January 04, 2010 2:53:34 PM by NVDave
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To: montag813
Rates are already going up on the 30-year fixed, and they’ll likely go higher when the Fed quits buying RMBS paper.



9 posted on Monday, January 04, 2010 2:55:04 PM by NVDave
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To: NVDave
You can see by Bernanke’s comments that he’s lost all touch with reality.



10 posted on Monday, January 04, 2010 2:57:16 PM by Track9 (The measure of a good education is knowing what truly sets you free)
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To: 4rcane
How can they not raise rates? Who is going to keep buying our debt?



11 posted on Monday, January 04, 2010 6:47:50 PM by Claud
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To: montag813
In other words, if you’re on the fence about your potential dream home, get off. Between Fed and the Chinese, rates are likely to explode.
Exploding interest rates will further depress prices, in an environment of already falling prices, very weak demand, oversupply of both new and resale homes already on the market, ongoing, year-over-year record foreclosures wtih no end in sight, and the weakest economy since the great depression.

Forget the dream home. Unless you're in one of the very few healthy regional economies remaining, it's a great time to rent, and to keep your options open as far as mobility. I can envision many more needing to go where the work is, above and beyond the new "Okies" from California and Michigan.

It's pretty bleak. Here comes the second leg down, imho.


12 posted on Monday, January 04, 2010 7:15:38 PM by RegulatorCountry
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To: Claud
who need to buy debt if they could just print the money they need. Raising debt only creates burden on the debter and US have tonnes of debt, so raising rate will only hurt themselves.



13 posted on Monday, January 04, 2010 7:19:14 PM by 4rcane
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To: 4rcane
I don’t know; isn’t it possible that they’ll have no choice except to raise rates? It appears to me the “marketplace” for the bond sales has effectively already started a rise in rates making it ever more expensive for the gov’t to borrow money. As that happens, Corporate bond issuers find themselves having to raise rates a sconch higher to be competitive with the gov’t bond issuances. I need do more research on this topic but I’m leaning toward the idea that probably sooner than later, the Fed will have to raise rates to stay even with the curve.