Fed Chairman Bernanke weighs limiting consolidation and asset bubbles

October 18, 2008 by · Leave a Comment
Filed under: Opinion 

First off, I don’t think Bernanke can do anything at this point to stop the declining of prices.  What I want to know is how do get to a mindset where you actually think that you want to try and stop this normal operation of the market? Personally I find the attitude, arrogant.  For someone who controls interest rates and debt based liquidity to think that they would have enough power to affect and multi-trillion dollar economy.  

shrinking incomes and shrinking credit is the main issue and giving credit to banking institutions is not going to make borrowers more creditworthy or raise peoples incomes so they can support the current debt levels.  If you debauch a currency during a financial crisis while trying to prevent the decline, you really are not accomplishing anything.  Your rewarding the speculators and hurt the savers?  Even when saving money is one of the biggest problems in this country.

News Piece:  

Federal Reserve Chairman Ben S. Bernanke said the central bank will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies.

Officials should review how supervision and interest rates can minimize the “dangerous phenomenon” of bubbles in housing, stocks and other assets that risk bringing the financial system and economy down with them when they burst, Bernanke said.

“There is no doubt that as we emerge from the current crisis that we are all going to look very hard at that issue and what can be done about it,” he told the Economic Club of New York in his broadest remarks on future regulatory changes since the credit crisis deepened last month.

The comments signal that the 54-year-old chairman, while trying to quell the worst market turmoil since the 1930s, is crafting an agenda for greater oversight. Policy makers will toughen their response to “excessive leverage,” give more weight to financial stability in economic analysis and examine ways to strengthen the system of trading and settlement behind complex derivative securities, he said.

The U.S. faces “a very serious too-big-to-fail problem,” in which the insolvency of a large financial company could threaten a market collapse, Bernanke said in reply to an audience question. “There are too many firms that are in some sense systemically critical.”

No Imminent Rebound

Government efforts to calm financial markets and stem the credit crisis probably won’t result in an immediate economic rebound, Bernanke said.

“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” Bernanke said in his speech. “Economic activity will fall short of potential for a time.”

The U.S. is showing increasing signs of falling into a recession, according to economists surveyed by Bloomberg News. Retail sales dropped in their longest slump in at least 16 years and prices paid to U.S. producers fell in September.

The economy shrank at a 0.2 percent annual pace in the third quarter, and will contract 0.8 percent in the last three months of the year, according to the median estimate of economists surveyed earlier this month. U.S. gross domestic product will expand by just 1.2 percent next year as the collapse of the housing market, rising unemployment and constrained credit cause consumers and businesses to curtail spending.

Housing Epicenter

“The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdowns in consumer spending, business investment and the labor market,” Bernanke said. “Credit markets will take some time to unfreeze.”

The Fed said today in a regional review of the economy that growth deteriorated throughout the U.S. last month and pessimism about the outlook spread.

“Economic activity weakened in September across all 12 Federal Reserve districts,” the Fed said in its Beige Book report. “Consumer spending decreased in most districts, with declines reported in retailing, auto sales and tourism.”

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