Monday, Oct 26, 2009
Are Central Banks starting to work it out? In the UK & US they actively promote asset price bubbles.
Bloomberg: Central Banks Hitting Asset Bubbles Show No Faith in Greenspan
Central bankers from Washington to Oslo are taking greater account of accelerating asset prices to avoid the policy mistakes that inflated two speculative bubbles in a decade and led to the worst financial crisis since the Great Depression. A month after warning that property prices are rising “probably excessively,” Norges Bank Governor Svein Gjedrem is set to increase interest rates on Oct. 28. Reserve Bank of Australia Governor Glenn Stevens cited costlier real estate as a reason for raising rates three weeks ago.
Posted by tyrellcorporation @ 08:47 AM (586 views) Add Comment
9 Comments
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1. crunchy said...
"Former Fed Chairman Alan Greenspan advocated a hands-off approach to asset prices during the U.S. expansion that lasted six years until December 2007. He said it was easier to clean up the mess of a bust than to spot bubbles and that monetary policy was too blunt to deflate them."
I am sure we all agree on this.
The more I learn about this man the more I detest him.
2. crunchy said...
Austin bloody maestro more like!
3. mander said...
Some central banks are eager to see assets rise to boost their economies, said Richard Batty, who those countries may be?
By the way BoE mentioned that they will not target assest prices.
4. 51ck-6-51x said...
Crunchy, no, we do not all agree on this point - Can you calculate what the cost would have been - including the costs of incorrectly identifying bubbles elsewhere along the way and all the knock on effects of that? [ rhetorical - no-one could possibly hope to! ]
Regardless, both "cleaning up" and "targeting asset prices" are inefficient methods targeting an effect in the causal chain and not the root cause.
Once again we are fooled by those who hold power into believing that there are only two proposals for a solution to a problem, when neither are really valid solutions. Inflation targeting already targets asset prices ( since it is controlled via feedback from a measure given by the price of a basket of assets ), if policy committees are to be able to flag up other assets as "out of kilter" it's just akin to them being able to change the basket ad hoc. In my opinion the real problem is the centralisation itself.
5. inbreda said...
I assumed crunchy was being sarcastic?
6. 51ck-6-51x said...
Inbreda - I took it to mean (s)he does not agree with Alan Greenspan on the point that cleaning up after a bust is easier than using monetary policy to avoid them; i.e. that we all agree that targeting asset prices would be better. In which case I do not agree. But, as seems to happen so often, Crunchy is less clear than could be hoped.
7. inbreda said...
"as seems to happen so often, Crunchy is less clear than could be hoped."
Yes - I really don't have the time or patience to unravel some of his/her more ambiguous comments. Usually skip past them. Don't know why I read the one on this thread!
8. letthemfall said...
I'm not sure that inflation took into account the house price bubble by any feedback effect, since RPI (which includes mortgage repayments - not necessarily an accurate reflection of prices) was not used by the Bank. Who bears the consequential cost of a bubble is an interesting question. Market "efficiency", as we've seen, leads to financial disaster for some.
9. 51ck-6-51x said...
letthemfall ,
House prices have not been a part of said measure used since it was changed from CPI to RPI by Gordon Brown in 2003 - see this letter. This changed the basket of assets used to provide the feedback - I am not saying monetary policy does not target asset prices, just that it's not right and neither is the ( 'only' ) proposed alternative.