Mishkin Impossible -- By Bill Fleckenstein
The bubbles, toils and troubles that nearly wrecked the financial system should've been obvious to the policymaking numbskulls whose monetary tricks made matters worse.
"Arrogant and incapable of learning."
When a teacher uses those words to describe a student, it's an isolated (if regrettable) situation. But the repercussions are widespread when "arrogant and incapable of learning" fits the Federal Reserve like a glove.
Still clueless after all these bubbles
Frederic Mishkin, a former member of the Fed's board of governors, wrote an article in last Tuesday's Financial Times that displayed that he, and presumably other Fed heads, have learned exactly nothing from the disastrous consequences of their activities in printing money over the past couple of decades.
The headline sort of says it all: "Not all bubbles present a risk to the economy." That is completely false. Any genuine bubble poses great risk, which is why they should be avoided, as I have warned repeatedly since at least 1997.
Meanwhile, when the two biggest bubbles our country had ever seen (those in stocks and real estate) were under way, most people appeared to be incapable of identifying them. Now the word "bubble" is bandied about constantly, as almost everyone seems to believe several are under way in various places (but that's another subject).
In any case, crowd psychology gone mad can produce a bubble in most anything. But when that mentality bumps into central banks like the one that has evolved in the United States under the tutelage of the Fed's Alan Greenspan and Ben Bernanke (who are now being emulated nearly everywhere), incredibly disastrous policies follow.
Nothing to fear?
Mishkin opens by arguing that a potential new round of asset bubbles would not, contrary to what some people have suggested, "provide a case for the U.S. Federal Reserve to exit from its zero-interest-rate policy sooner rather than later."
So for anyone who ever gets tempted to be sucked in by the Fed's tough-guy talk, this is another example that nothing short of radically higher inflation or, more likely, a far lower unemployment rate will cause the Fed to tighten the money supply by raising interest rates -- unless, of course, the printing press is taken away first. (That, too, is a subject for a different week.)
Read the rest of Fleck's piece HERE
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