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The Fed now stands accused of being a serial bubble blower.
Stephen Roach, chief economist at Morgan Stanley, worries that the Fed has become a "serial bubble blower".
Not only has it held interest rates unusually low, but the excesses of an asset-driven economy are being fuelled by artificially low bond yields (helped by huge purchases from Asian central banks trying to suppress the rise in their currencies) and hence mortgage rates.Stephen Roach, the chief economist at Morgan Stanley, has long argued that the Fed is a "serial bubble blower".
The inevitable downturn is then deeper or longer.But having made the mistake of allowing a bubble to inflate and then burst, the Fed now faces a difficult balancing act: trying to prevent deflation, while at the same time avoiding a credit bubble which may burst even more painfully.Joachim Fels, an economist at Morgan Stanley, accuses the Fed of being a serial bubble blower.
"The main thing we're doing is not working, and that is the serial bubble machine coming out of the Federal Reserve," Stockman, an ex-budget director for Ronald Reagan, said on "This Week," arguing that the easy money policies are helping Wall Street at the expense of Main Street.
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(The influential Reuters blogger Felix Salmon calls Bernanke a serial "bubble-blower").
The build-up of excess liquidity in recent years, as central banks have become serial bubble-blowers, is a growing cause for concern.
The core inflation rate — that is, excluding food and energy prices — was in the 2 1/2 to to 3percentt range in 1995 to 1996, when serial bubble-blowing supposedly began.
As serial bubbles have burst, faith in the market has been rewarded with shattered retirements.
Professional investors have learned the lessons of the financial markets' serial bubbles and learned them well.
Its apparently smooth handling of risks reduced financial intermediation costs but was in fact blowing serial bubbles in asset markets in the run-up to the global financial crisis (Canuto, 2009).
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