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Wednesday, January 06, 2010

Monetary Policy and the Housing Bubble BY Chairman Ben S. Bernanke At the Annual Meeting of the American Economic Association, Atlanta, Georgia


   THE  REGULATORY SOLUTIONS WON'T HELP THE RECOVERY OF  A STATE'S ECONOMY  WHICH BY SYSTEM IS  BASED IN FREE ACTING MARKETS AS HONORABLE CHAIRMAN BERNAKE PROPOSES (PLS CLICK  THE TITLE),MORE CONTROL???

THIS IS DANGEROUS FROM THE POLITICAL POINT OF VIEW,EVEN IF IT IS SUGGESTED BY A PRIVATE ,STATE CONTROLLED, INSTITUTION,AS FED IS.

THE CONCLUSIONS POSED BY THE BELLOW  LAID  ARTICLE   ARE STANDING WELL,BUT THE GIVEN SOLUTION BY PROF.SHILLER WILL ONLY  EM-BREATH  AN EXTENSION TO A  COLLAPSING MARKET,TORTURING BY THAT WAY THE CREATIVE POWERS .
THE  MIXED SYSTEM OF  CAPITALISTIC-COMMUNISTIC  ECONOMIC POWERS  (CHINA-USA)  OF TODAY, PRODUCES CRISIS CYCLES EVERY 7-10 YEARS AS STATISTICS ARE SHOWING  SINCE  1929.
BUT IT SEEMS THAT THIS PERIODICAL PHENOMENON  ISN'T TRUSTFUL   ANYMORE.

AGGELOS  CHARLAFTIS






More regulation to control bubbles




Bubbles are popping up everywhere. The rally in the stock market is only one. Others include China, gold, renewable energy, the prices of junk financial stocks like Fannie, Freddie, AIG, Citi and Bank of America getting pushed up in the rush to buy cheap, education, repackaged subprime mortgages, securitised life insurance schemes and emerging markets in developing countries. All bubbles burst and I look at them 

(All bubbles lead to a meltdown. This is what's so alarming in this Business Insider piece that talks about 10 bubbles in the making: China; gold; renewable energy; the Fed snapping up $1.25 trillion of mortgage backed securities; the prices of junk financial stocks like Fannie, Freddie, AIG, Citi and Bank of America getting pushed up in the rush to buy cheap; education; repackaged subprime mortgages; securitised life insurance schemes; commercial real estate (definitely popping now) and emerging markets in developing countries.If the piece is right, the next meltdown could make what we have just gone through look like a picnic.

As I pointed out in one of my columns, we need a system to anticipate and manage bubble because they're inevitable.
"The forces that create bubbles are only partly to do with economics. The big drivers are social and psychological. We need an infrastructure that can anticipate our thinking, inhibit the growth of bubbles and stop the damage, not only to the economy but to the social fabric.")



Now, Federal Reserve chairman Ben Bernanke has flagged that the Obama administration will introduce more regulation to control bubbles. The bottom line: more government intervention to protect markets.

In a speech to the American Economic Association, Bernanke says more regulation is the big lesson to draw from the meltdown.

"Even as we continue working to stabilize our financial system and reinvigorate our economy, it is essential that we learn the lessons of the crisis so that we can prevent it from happening again,'' Bernanke said."Having experienced the damage that asset price bubbles can cause, we must be especially vigilant in ensuring that the recent experiences are not repeated. All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs."

Still, he did not rule out higher interest rates although he conceded monetary policy is a blunt tool.

For that matter, so is regulation. We need other methods to inhibit bubbles. We can start with improved disclosures and enhanced financial data bases, so investors have a better idea of the risks ahead.

In his book, The Subprime Solution, Yale University professor of economics Robert Shiller says we need market based mechanisms to stop bubbles. These would include new markets in government securities, real estate and occupational income. He says it's more a case of risk management than risk avoidance. If you don't take risks, nothing grows. The challenge is doing it from a position where you don't damage yourself in the process.


SOURCE     http://www.soxfirst.com/

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