Federal Reserve Mulls Bursting Financial Bubbles

The brains inside the Federal Reserve are reportedly mulling the merits of bursting financial bubbles as a new strategy to combat crises before they happen.

 WASHINGTON, D.C. — The brains inside the Federal Reserve are reportedly mulling the merits of bursting financial bubbles as a new strategy to combat crises before they happen.

This talk was revealed in minutes released from a closed door meeting earlier this month about the possibility of record-low interest rates fostering “excessive risk-taking in financial markets.”

A blogger for Huffington Post noted, “For many, this admission was a long time coming.”

The Fed already has several probable bubbles to choose: gold, Asian property, and Brazilian stocks, according to the Wall Street Journal.

The chance in bubble policy is coming from none other than the current chairman of the Federal Reserve Ben Bernanke, who gained his cred at the Fed as an ardent anti-bubble burster in 1999.

Bernanke, like his predecessor Alan Greenspan, has been criticized for not seeing both the housing bubble and the credit crisis soon enough.

However, missing from the discussion in the WSJ is the idea that the Fed chair could merely talk about such asset bubbles as a way of managing them, noted Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.

“If the Fed had devoted its enormous research capacities to documenting the existence of a bubble and the likely implications of its bursting, and the Fed chairman used his enormous megaphone to widely disseminate this information at congressional testimonies and other public appearances, it would have almost certainly been sufficient to burst the housing bubble,” he wrote on his blog Beat The Press.