Courtesy of Mish
Reader Bob wants to know if the Fed can keep various bubbles levitated forever. Here is his specific question followed by my response.
Hi Mish,
Thanks for the great website. I read it every day. With the changes in the rules of the Fed from TARP, I have come to question how things will ever change. I believe the Fed will never raise interest rates (of any consequence). I think the Fed will buy assets in any crash in stocks, bonds, real estate, etc.
What if a law required that no real estate be sold for less than 10% of its purchase price? [Mish note: Bob said 10% but I think he means 110%. Alternatively, he does not want homes to sell for more than 110% of the previous sale to stop bubbles. I address both possibilities.]
Is anything wrong with my thinking? Can anything end this? I am an average income guy paying my bills.
Thanks for any insight.
Bob
Attitudes
Can this go on forever? That’s a question I get asked all the time.
Many seem to think so. The same attitude prevailed in 1929, 2000, 2007, and 2017. That’s 3 bubbles in 17 years. Each bubble is of bigger amplitude.
No one thought Japanese stocks could or would fall from 39,000 to 7,000 over 20 years but that happened. Could we see the same in the US? Why not?
Central Banks Omnipotent?
If central banks were omnipotent there would not have been a crash in Japan. If central banks were omnipotent there would not have been a global crash in 2000 or 2007.
Can central banks prevent crashes or declines forever? History says no. Does QE make things any different? Why? Is the Fed going to own everything?
I am sure the Fed will not own everything. Will another round of bond buying ignite the markets again? Why would it?
