Photo: Flickr via yakobusan
The new open-ended QE will surely lead to a lot of controversy. For the time being, however, the folks endorsing NGP targeting look like winning the game for the time being. Certainly, with such an aggressive move, there will be endless talks about hyperinflation or the destruction of the value of the US dollar, which we certainly do not agree with.
But the press conference did contain a rather disturbing piece of information. The press conference of Ben Bernanke contained something which is probably the closest we can get where a central banker almost more or less said that bubble is good for the economy.
“The tools we have involve effecting financial asset prices. Those are the tools of monetary policy. There are a number of different channels. Mortgage rates, other interest rates, corporate bond rates. Also the prices of various assets. For example, the prices of homes. To the extent that the prices of homes begin to rise, consumers will feel wealthier, they’ll begin to feel more disposed to spend. If home prices are rising they may feel more may be more willing to buy home because they think they’ll make a better return on that purchase. So house prices is one vehicle. Stock prices – many people own stocks directly or indirectly. The issue here is whether improving asset prices will make people more willing to spend. One of the main concerns that firms have is that there is not enough demand… if people feel their financial position is better… they’ll be more likely to spend, and that’s going to provide the demand firms need in order to be willing to hire and to invest “
Which is almost saying that the policy which in part contributed to the last bubble is now going to help the economy. We are not sure when was the last time when central bankers explicitly suggest that bubble is good, more or less.
This article originally appeared here: When a central banker almost says that bubble is good
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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