Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Mishkin's Bubblenomics and the Crash of 2008

Economics / Market Manipulation Nov 12, 2009 - 01:26 AM GMT

By: Mike_Whitney

Economics

Best Financial Markets Analysis ArticleThe Fed's monetary stimulus is driving the market higher. What started as a trickle has turned into a torrent buoying stocks and commodities on a river of liquidity. Oil has more than doubled in the last 8 months while stock indexes have gained 50 percent or more in the same period. Even the shunned homebuilders and battered financials have staged a comeback. Meanwhile, consumer credit continues to shrivel and the "real" rate of unemployment climbs inexorably towards 20 percent.


Overpriced equities with bloated P/E ratios of (average) 19 continue to produce record profits for breathless speculators, while the productive economy languishes in a Depression. The Fed's zero-rate policy and easing programs have created another bubble, further widening the chasm between the investor class and the working rabble.

Former Fed governor Frederic Mishkin delivered a defense of Bernanke's stock/commodities bubble in an article in this week's Financial Times titled "Not all bubbles present a risk to the economy". Oddly enough, Mishkin makes no attempt to dispute the Fed's bubblemaking strategy, but only to clarify the difference between good and bad bubbles. This may go-down as the most poorly-considered public relations campaign in history.

Mishkin: "There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no."

Shocking. Mishkin admits that the Fed doesn't care if its policies distort the market and fuel speculation as long as they achieve their intended objective. But investors place their bets presuming that the market is truly "free" and operates independent of any central planning Politburo that meddles whenever it suits the broader goals of its constituents. Mishkin's comments simply reinforce the belief that the markets are manipulated and, perhaps, rigged.

Mishkin again:

"Asset-price bubbles can be separated into two categories. The first and dangerous category is ... “a credit boom bubble”, in which exuberant expectations about economic prospects or structural changes in financial markets lead to a credit boom. The resulting increased demand for some assets raises their price and, in turn, encourages further lending against these assets, increasing demand, and hence their prices, even more, creating a positive feedback loop. This feedback loop involves increasing leverage, further easing of credit standards, then even higher leverage, and the cycle continues."

Blah, blah, blah. So, the end justifies the means?

Once again, we are not concerned with the results of bubble-making, whether they are positive or negative. The point is irrelevant. What matters, is whether or not the market operates independent of a central authority that arbitrarily intervenes when its interests (or that of its constituents) are threatened. This is why the Fed cannot be trusted as the primary steward of the financial system, because of its blatant lack of impartiality. Mishkin's institutional bias makes it impossible for him to even grasp this point. He is utterly clueless!

Mishkin again:

"But if bubbles are a possibility now, does it look like they are of the dangerous, credit boom variety? At least in the US and Europe, the answer is clearly no. Our problem is not a credit boom, but that the deleveraging process has not fully ended. Credit markets are still tight and are presenting a serious drag on the economy.

Tightening monetary policy in the US or Europe to restrain a possible bubble makes no sense... At this critical juncture, the Fed must not take its eye off the ball by focusing on possible asset-price bubbles that are not of the dangerous, credit boom variety."

Considering his earlier remarks, Mishkin makes a strong case for intervention. After all, deleveraging is a serious problem. But what is the Fed's alternative; banning deflation? Pumping more ether into a burst balloon? Is the Fed planning to pass a law that markets can only go up from this point on? This is lunacy.

And why would the Fed deploy a bumbling apparatchik to defend the policies which have already had a catastrophic effect on the global system resulting in record-high foreclosures and skyrocketing unemployment? Mishkin is like the doctor who kills his patient with toxic medicine and then asks to try a smaller dose on someone else. This may be the most botched PR campaign of all time.

Everyone knows what the Fed is doing. Most people are aware that the stock market is soaring while the homeless shelters and food banks are bulging, and the unemployment lines stretch from one side of town to the other. The economy is in a depression; people know that. Just as they know the Fed is printing money and shoving it into every crack in the financial system to maintain the appearance of "economic recovery".

The Fed's meddlesome interventions (now in-excess of $11.4 trillion) represent the largest transfer of wealth in history. People know that, too! So, do we really need a shambling goofball like Mishkin to convince us that it's all for our own good; that the stealth maneuvering of self-aggrandizing bank-vermin is really in the public's interests?

That's a bit much, isn't it?

Berkeley economics professor Emmanuel Saez, recently released a report which just confirms that income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression. The report shows that

1--Income inequality is worse than it has been since at least 1917

2--"The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007"

3--"In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."

Who didn't know that the "rich are getting richer and the poor are getting poorer"? Who didn't know that more and more of the nation's wealth is being transferred (via the Federal Reserve) to shifty speculators from ordinary working people?

Everyone knows.

Now the Fed has decided to to inflate another bubble to make up for the bubble that just burst. Great.

Bernanke is committed to preventing the market from correcting and reestablishing its equilibrium.

He has thrown the dollar in front of a runaway train hoping to keep prices of worthless mortgage-backed garbage (MBS) artificially high.

He'll do anything to avoid another round of debt-deflation. He'll do anything to keep the red ink at bay.

But the magnitude of the losses is much greater than the Fed can counter. At some point, the avalanche of asset liquidation, writedowns and defaults will thunder from the mountaintop sending stocks into hibernation while the anemic greenback stages a comeback.

It's only natural that Mishkin would defend the Fed's serial bubblemaking. But as the crisis deepens, the public will see through the fabrications and realize the central role the Fed played in the Crash of '08.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in