2014: Financial Bubbles Are Caused By The Fed, Not The Market

Submitted by Jeffrey Snider of Alhambra Partners, More of the same from Janet Yellen in her latest speech, but her focus on “resilience” caught my attention as it relates to very recent developments. The taper threat experience last year may have been a warning, but it doesn’t seem like it resonated with her or policymakers. The major bond selloff, which led to global ripples of crisis in credit, funding, and currencies, was the opposite of flexibility. Perhaps a better definition of the word would be a place to start. But her meaning was a bit different, in that it is clear (from this speech and prior assertions, wrong as they were, about the mid-2000’s housing bubble) she sees bubbles as “market” events in which the central bank’s role is primarily shock absorption. In other words, idiot investors wholly of their own accord create bubbles and it’s the job of […] Read More