Bubble Warning – Four Years Too Late

Talk about being behind the curve: The International Monetary Fund issued a warning to central banks regarding their stimulus activity, that “the policies could inflate asset bubbles and destabilize financial markets.”

At least for the Federal Reserve, that “stimulus” activity, a.k.a., quantitative easing, has done nothing to stimulate the broader economy, but has helped Wall Street banks and hedge funds reap windfall profits from equity and commodity trading, all pursued with the help of money obtained at rates almost equal to zero.

At a meeting of the Fed’s policymaking committee last month, some officials argued that the Fed’s programs could lead to another stock market bubble or encourage investors to take on too much debt.

Janet Yellen, the Fed’s vice chair, downplayed those risks in remarks Tuesday at a conference sponsored by the IMF.

“I don’t see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability,” she said. “But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation.”

Wow, Janet, don’t go getting all radical on us.

The swiftness with which this observation was made by the IMF ranks right up there with a Goldman economist’s reflection that “Gee, maybe we crapped in our own bed.”

Look for the collapse of gold to be the first of many this year. Hang on, tightly.

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