In the past, the Fed believed it had no business trying to deflate asset bubbles -- even though when they pop, they can wipe an economy out almost overnight. But a speech made by recently appointed Federal Reserve Governor Jeremy Stein suggests that policy may be about to change.
While most of the world's central banks are still fighting the last war, Sweden's Riksbank has moved on to the next one. Rather than looking at conventional inflation gauges, the world's oldest central bank is basing its actions on asset-price growth in an effort to prevent the next bubble.
Gold is on a record bull run, up from $328 in 2002 to $1,375 an ounce today. What caused that steep rise wasn't any inherent increase in gold's value to society, but a clever marketing scheme that allowed it to be traded easily without the hassle of physical delivery: The SPDR Gold ETF.
Republican leaders may be worried about the Federal Reserve's second round of quantitative easing, but the stock and credit markets are delighted: They've improved significantly since the plan was announced. But can the rally be solely attributed to QE2?
Everyone now knows that real estate values were inflated in a massive bubble a few years ago. While that's clear in hindsight, it raises the disturbing question: What other assets could be in a bubble right now? The experts we asked gave us a long list.
Former Fed Chairman Paul Volcker warns that more quantitative easing by the Federal Reserve will stoke inflation. "When money is too easy for too long, we will have more" asset bubbles, the 83-year-old Volcker said.
Bernanke's zero-interest-rate policy is backfiring. Only the wealthy benefit from rising financial assets, as average Americans take on more debt and grow poorer. Worse, risky speculation is again being rewarded.
Home sales are way down, unemployment is still high, and investors are waiting for the Federal Reserve to take action. Passions run high about what the Fed should do next, but its ability to move the needle on GDP growth or unemployment may be more limited than most assume.
