Is the Fed creating new bubbles?
22 Nov 2009, 2250 hrs BusinessWeek
America's super-easy monetary policy has drawn a blast of criticism lately from the high and mighty of Asian finance. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke stand accused of blithely ignoring the risk of new asset bubbles and more economic mayhem.
As critics see it, the Fed helped inflate the tech and housing markets over the past decade and is setting up the global economy for another doozy with its near-zero short-term interest rates.
Global investors can borrow dollars cheaply and invest the borrowed funds in assets ranging from Indonesian stocks to copper futures contracts, a strategy known as a carry trade. During Obama's recent Asian swing, China Banking Regulatory Commission Chairman Liu Mingkang warned that U.S. monetary policy is creating "new, real, and insurmountable risks to the recovery of the global economy, especially emerging-market economies."
Bank of Japan Governor Masaaki Shirakawa and Hong Kong Chief Executive Donald Tsang issued similar warnings.
New York University economist Nouriel Roubini argues that the Fed is inviting speculative excesses in all kinds of risky assets by providing cheap dollar financing for what he calls "the mother of all carry trades."
Massachusetts Institute of Technology economist Simon Johnson faults Bernanke's predecessor, Alan Greenspan, for ignoring the risk of bubbles and says, "The intellectual apparatus of Greenspan is still there." Adds Richard Bernstein, CEO of Richard Bernstein Capital Management: "[Bernanke] and Greenspan said that identifying bubbles was difficult, but that cleaning up after them was manageable. That has clearly been shown to be untrue."
22 Nov 2009, 2250 hrs BusinessWeek
America's super-easy monetary policy has drawn a blast of criticism lately from the high and mighty of Asian finance. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke stand accused of blithely ignoring the risk of new asset bubbles and more economic mayhem.
As critics see it, the Fed helped inflate the tech and housing markets over the past decade and is setting up the global economy for another doozy with its near-zero short-term interest rates.
Global investors can borrow dollars cheaply and invest the borrowed funds in assets ranging from Indonesian stocks to copper futures contracts, a strategy known as a carry trade. During Obama's recent Asian swing, China Banking Regulatory Commission Chairman Liu Mingkang warned that U.S. monetary policy is creating "new, real, and insurmountable risks to the recovery of the global economy, especially emerging-market economies."
Bank of Japan Governor Masaaki Shirakawa and Hong Kong Chief Executive Donald Tsang issued similar warnings.
New York University economist Nouriel Roubini argues that the Fed is inviting speculative excesses in all kinds of risky assets by providing cheap dollar financing for what he calls "the mother of all carry trades."
Massachusetts Institute of Technology economist Simon Johnson faults Bernanke's predecessor, Alan Greenspan, for ignoring the risk of bubbles and says, "The intellectual apparatus of Greenspan is still there." Adds Richard Bernstein, CEO of Richard Bernstein Capital Management: "[Bernanke] and Greenspan said that identifying bubbles was difficult, but that cleaning up after them was manageable. That has clearly been shown to be untrue."
