Posted by on January 27, 2017 2:08 pm
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Categories: Ben Bernanke Business Corruption Economic bubbles economics Economy Enron federal reserve Financial crises financial crisis Financial crisis of 2007–2008 Financial market Great Recession in the United States Janet Yellen Market Crash Nouriel Nouriel Roubini Stock market bubble Systemic risk TARP Twitter US Federal Reserve Valuation

By EconMatters

It is pretty obvious the stock market is not, and has not been trading on actual earnings for a long time, but at these valuations it is starting to get downright scary how far these assets are going to fall in the inevitable market crash when every excessive risk taker runs for the exits at the same time.

Nouriel Roubini wrote a paper before the 2008 financial crash outlining the fact that market participants basically will not and cannot help themselves in taking outsized risky bets in assets when given the chance. That it is the Fed`s job to be the responsible actor in the room and Pop these Bubbles before they get so big that they risk the stability of the entire financial system due to the fact that they become so large and out of proportion to the historical norms or the underlying fundamentals.

This is what we currently have in stocks, an outsized asset bubble by any historical financial metric we want to analyze. The Federal Reserve was supposed to raise rates 3 times last year, instead they waited until the end of the year to do one, further exacerbating the stock market bubble. They are supposed to do 3 more rate hikes this year, but by my calculation that means they need to do at least 5 rate hikes to make up for the 2 rate hikes they missed last year, and fell well behind their own rate hiking normalization schedule.

They keep making excuses for not doing their job as the market regulator, and the only market regulator in the room. Did they not learn anything from the 2008 financial crisis, that financial asset bubbles are bad for both the economy and the stability of the entire financial system. Were bank bailouts and TARP fun for you Janet Yellen? It is about time regulators do their job, or start going to jail instead of taking lucrative consulting opportunities once they leave office like Ben Bernanke. The conflicts of interest in the economics` profession have been a problem for decades.

The economics` profession needs to start being held accountable for doing damage to the economy and financial markets through promoting artificial bubbles that they know end poorly every time in a similar fashion to Jeffrey Skilling and off balance sheet financing activities at Enron.

The Central Bank Strategy seems to be to just dance until the music stops, and Come What May when the shit hits the fan. Well in my book, that isn`t going to cut it after the financial crisis of 2008, because it costs taxpayers and ordinary citizens and the overall economy a whole lot more to wait and address the problem after the fact, than to just do your job and raise interest rates and pop the asset bubble ahead of time.

This is pretty easy for any economist to understand, shoot the average high school student gets this economic calculation. The incompetence or outright corruption, or just not doing your intended job function has got to stop at the Federal Reserve, or these people need to start serving time in prison like common criminals who destabilize societal cohesion. Central Bankers should Pop known asset bubbles before they get to the Crash Stage Scenario. In short, stop dancing while the music is still playing.

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