Ben Bernanke has apparently added a little stand-up comedy to his bag of tricks. This past week, Chairman Bernanke indicated his belief that there are no “obvious” asset bubbles in our economy right now. To quote Bankruptcy Ben, "It's extraordinarily difficult to tell, but it's not obvious to me ... there are any large misalignments currently in the U.S. financial system."
What is he thinking? The stock market is currently a huge bubble. From October 2007 to March 2009, the Dow Jones Average fell by about 50 percent. This is indicative of the fact that the previous market highs were out of whack for market conditions and needed to come down to reality. That is how the free market works when it is given the opportunity. Since last March, in just nine months, the Dow has rebounded off its low by an astounding fifty-three percent! It’s a bubble being fueled by all the cheap dollars the Fed is injecting into the economy.
If you don’t believe me, Mary Miller, director of fixed income for the T. Rowe Price Group indicated at the company’s symposium in Baltimore on Thursday, "I'm familiar with one institution that just borrowed $400 million — because they could — and then called up and said, 'What should we do with it?” That is what a lot of banks are doing with our money that has been given to them — not lending it but speculating once again in another Fed induced bubble. It is outrageous.
What is even more outrageous is Bernanke saying essentially that the current stock market fueled by his printing press is not a bubble. The economy is still in the dumper — I won’t bore or depress you further with all the numbers, but the stock market continues to climb to exorbitant highs. Give me a break and come clean Mr. Chairman.
Bernanke is clearly being disingenuous because if he acknowledged the truth it would indict the system that he has made a very good living from. The Federal Open Market Committee must be agonizing over whether to leave interest rates at essentially zero and continue to perpetuate the stock market bubble or raise rates and watch that bubble burst. It is going to happen sooner or later — sooner would still be painful but less extreme. Bernanke may not know it but the no win quandary he faces explains to a degree the Austrian School of Economics’ Business Cycle Theory.