Re: Bernanke again
Marta Russell quoted Mark Weisbrot:
The Fed can cool off a bubble without having to raise interest rates and thereby dampen other economic activity. For example, to deal with the housing bubble, all the Fed Chairman would need to do is explain the reality: since 1996 house prices nationally have increased more than 45 percentage points after adjusting for inflation. From 1950-1995 house prices increased at the same rate as inflation. It is easy to show that this sharp break with the past is the result of a speculative bubble. If the Fed won’t do this, who will?
Eh? Just pointing out this fact would deflate the bubble? And deflating the bubble would have no effect on real activity? But housing has been responsible for a major share of employment growth over the last few years, and borrowing against appreciated house values has fueled a lot of consumer spending. If an asset bubble is stimulating real activity - as the stock bubble did in the late 1990s, and as the housing bubble has done in the early 2000s - then “other economic activity” is going to have to take a hit.
Doug