'..Monetary excess can be directed to specific asset markets, such as mortgage (MBS) or securities Credit (i.e. repo, “carry trades,” margin debt). Leveraged speculation typically plays a critical role. Over recent years, however, we’ve witnessed how rapid central bank “money” creation (balance sheet expansion) can also become integral to inflating asset Bubbles.'<blockquote>'The HBR’s Justin Fox ended his “What’s That You’re Calling a Bubble?” blog with “If you’ve got a better bubble definition, let’s hear it.” I do, but with the major caveat that various forms of Bubbles and complex Bubble analysis can’t be boiled down to a couple sentences. Nonetheless, here’s my simplified definition: “A Bubble is a self-reinforcing – yet inevitably unsustainable – inflation (price and/or quantity) fueled by monetary expansion coupled with significant destabilizing market misperceptions and distortions.”
To add a little analytical depth to my definition, it’s important to note that monetary inflation is generally an expansion of Credit. Bubbles are generally fueled by an overly accommodative monetary backdrop, although Credit excess might very well be confined to a particular sector (i.e. telecom debt 1999). This Credit could be governmental, corporate, household or market-based. Most likely, the monetary expansion would be associated with rapid growth in financial sector balance sheets and risk intermediation. Monetary excess can be directed to specific asset markets, such as mortgage (MBS) or securities Credit (i.e. repo, “carry trades,” margin debt). Leveraged speculation typically plays a critical role. Over recent years, however, we’ve witnessed how rapid central bank “money” creation (balance sheet expansion) can also become integral to inflating asset Bubbles.
..
..William McChesney Martin was one of America’s greatest central bankers – disciplined, independent and prudent. He was definitely no inflationist. Martin actually well-understood the insidious nature of inflation and, in the words of the New York Times, he “detested” it. He headed the Fed from 1951 to January 1970. In the late-sixties he raised rates to fight rising inflation in the face of intense political pressure. It is worth noting that in the twenty-year period 1950 through 1969, the Fed’s balance sheet increased $32.5bn, or 67%, to $80.7bn. Over this same period, GDP jumped 274%. The Fed’s balance sheet was 15% of GDP at the beginning of Martin’s term (inflated from WWII monetization) and was down to 8% by its conclusion.
Over the most recent twenty-year period, Federal Reserve assets have increased $3.576 TN, or 844%. Over this period, GDP expanded 151%. Examining just the past 10 years, Fed assets inflated $3.03 Trillion, or 400%, compared to 52% growth in GDP. Fed assets remained in a range of between 6% and 7% of GDP from 1980 to 2007. They ended 2013 at about 24% of GDP and were climbing rapidly.'
- Doug Noland,
The Departing Bernanke on Macro-Prudential, January 10, 2014</blockquote>
'..And here we are again, at yet another 7-year interval, with the Fed unable or unwilling to see the bubbles they created,.'<blockquote>'Fed forecasts are exceptionally wrong at economic turns, as past minutes from 2000 and 2007 show.
And here we are again, at yet another 7-year interval, with the Fed unable or unwilling to see the bubbles they created, just as they failed to see the dotcom bubble in 2000 and the housing bubble in 2007.'
- Mish,
Fed Minutes Show Majority Believe "Marginal Efficacy of QE Likely Declining"; Economy Turned the Corner? January 08, 2014
Context<blockquote>
(Global) - '..how monetary policymakers somehow remained oblivious to the havoc they were instrumental in fomenting.'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'</blockquote>