Dear Fed, It’s Not ‘Really Hard to Spot Bubbles’

Jon Economy

Here are some visual aids to help the Fed spot the housing bubble. Minneapolis Fed President Neel Kashkari was the latest Fed official to claim in an essay – thus following in the time-honored footsteps of former Fed Chair Ben Bernanke – that ‘spotting bubbles is hard,’ that the Fed cannot see them, and that if it could see them, it shouldn’t do anything to stop them because it had only ‘limited policy tools,’ and because ‘the costs of making policy mistakes can be very high.’
But it’s OK to use these ‘limited policy tools’ to inflate the greatest bubbles the world has ever seen and then preside over the damage they cause to the real economy before they even implode.
Neither Kashkari nor anyone else working at the Treasury Department in 2006 – when they were tasked by Secretary of the Treasury Hank Paulson to look for signs of trouble because they were ‘due for some form of crisis,’ as he writes – could see any bubbles, not even the housing bubble although it was already beginning to deflate.

This post was published at Wolf Street on May 30, 2017.