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Asset bubbles could be back
International Monetary Fund Managing Director Dominique Strauss-Kahn
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TEXT OF STORY
Kai Ryssdal: Mr. Bernanke and his colleagues at the Federal Open Market Committee wrapped up two days of conversations today. The general topic was the state of the economy. The specific agenda item was something called the Federal Funds rate. It's how the Fed controls the cost of borrowing. Right now the U.S. central bank, and many others, have pushed those costs to record lows. All in the hopes of getting the global economy going again. But easy money creates its own problems. This week both the World Bank and the International Monetary Fund warned that asset bubbles could be back. Marketplace's Steve Henn reports.
STEVE HENN: In the past year, gold prices climbed 44 percent, copper surged 50 percent. In Singapore, real estate is rising like it's Vegas in boom times.
And in Hong Kong one large, luxury apartment is expected to sell for more than $50 million. So is this the beginning of another bubble?
MICHAEL MUSSA: As a general rule -- no.
Michael Mussa is a former chief economist at the International Monetary fund. Mussa believes the global economy is already recovering much faster than most predicted. And in Asia he says the expansion is well under way.
MUSSA: While a V-shaped recovery is still for the United States a forecast, the V-shaped recovery is for many emerging-market countries already an economic fact.
So Mussa argues it makes sense for Asian stock markets to boom.
MUSSA: I don't think that in general equity prices are substantially too high.
But many other economists warn bubbles are notoriously hard to spot, especially before they pop.
Ralph Bryant was director of international finance at the Fed.
RALPH BRYANT: It's very difficult.
Bryant says just think back to the housing boom.
BRYANT: For every person who was expressing doubts, there were probably three or four who thought it was the natural evolution of housing prices that they would gradually go up forever and ever. So we should be pretty humble, I think.
But Bryant says if Central bankers raise interest rates to pop bubbles before they form, they could kill off any recovery. Instead, he says the world needs much better banking regulation.
In Washington, I'm Steve Henn for Marketplace.
To respond to the quote "But many other economists warn bubbles are notoriously hard to spot, especially before they pop.".
Give me bleeping break!!. Take last two bubbles.
During nasdaq bubble companies without earnings were trading at ridiculous market caps. Only idiotic central bankers did not know that was a bubble.
Take the real estate bubble. The housing prices were going up at ridiculous pace. If you are driving in car more than half the commercials about mortgages sellers who were promoting 1% option loans. Again only Bernanke/Greenspan and their followers did not know that was bubble.
For FED bubble is the normal economy. When a bubble bursts, FED calls it "deflation" and starts pumping money until another bubble is built or it becomes normal in FED terms.
