Anyone who has read a Murray N. Rothbard book, followed the Federal Reserve System closely and doesn’t believe in the lies told by governments and central banks will realize that there are many sects of the United States economy and stock market today that are in a bubble, and on a verge of bursting, too.
Right now, the bond, credit, housing, social media and technology markets are in bubbles.
Federal Reserve Chair Janet Yellen even acknowledged that bubbles are prevalent. Since the 2000s, the Fed – thanks to Alan Greenspan and Ben Bernanke – has kept interest rates at record lows in order to spur consumer spending and financial institutions lending. This has also caused investors to seek out riskier investments, which is why corporate bonds and stock markets at all-time highs.
Nevertheless, Yellen confirmed that she will not be raising rates just to burst the bubbles. Instead, the central bank will only boost interest rates when the labor market has returned to pre-recession times and when the inflation reaches two percent annually.
“I do not presently see a need for monetary policy to deviate from a primary focus on attaining prices stability and maximize employment, in order to address financial stability concerns,” the Fed Chair told an audience at an International Monetary Fund (IMF) lecture in Washington on Wednesday.
Yellen believes it should be up to the financial regulation entities rather than monetary policy to ensure that the financial system is stable – it’s interesting because it was the Fed’s low interest rates, cheap money and easy credit that led to the economic collapse in the first place.
In responding to critics who say the central bank should have raised rates prior to the housing collapse, Yellen argued that increasing rates would have made a bad situation even worse, such as hurting the job market and destroying households with high debt levels. Also, higher rates would haven’t have addressed some of the fundamental problems of the economy.
“Such an approach would have been insufficient to address the full range of critical vulnerabilities,” said Yellen. “Policymakers failed to anticipate that the reversal of the house price bubble would trigger the most significant financial crisis in the United States since the Great Depression.”
Austrian Economists present the case that artificially low interest rates incite malinvestment and prevent the market from correcting the mistakes from the incompetent and allowing the competent to take over the assets.
Here is what Thorsten Polleit wrote in 2011:
“To sum up, in an unhampered market, the market interest rate (adjusted for risk and inflation premiums) is expressive of peoples’ time preference, and it corresponds with the natural interest rate. It allows for people allocating current income to consumption, savings, and investment in accordance with their true preferences.
“In a fiat-money regime, where money is produced through bank circulation credit, the market interest rate will necessarily be pushed to below the natural interest rate as determined by peoples’ true time preference (that is, the pure interest rate adjusted for risk and inflation premiums).”