E Attacking The Everything Bubble Without Killing The Economy

In the study, Palley comes up with an idea of controlling each market interest rate separately, without imposing that cage upon the entire system. As Pilkington says:

In such a scheme there would be additional reserve requirements for each asset class. So, there would be separate reserve requirements for stocks, bonds, mortgage securities and so on. The central bank could set these requirements at zero initially and then when they saw instability being generated in any given market they would raise the reserve requirements on that asset class. This would increase the cost of holding this type of asset and drive up the interest rate on it without directly affecting interest rates in the rest of the system.

In a system like this, Mish could have his cake and workers could eat theirs too. 

Here is what we know now. Reliance on across the board asset inflation is sure to leave out huge swaths of the population, relegating them to wealth inequality and hurting economic recovery. Economic recovery is just pretend recovery without adding prosperity to the mainstreet economy.

Under the economy we have now, we are in what Talkmarkets contributor Jesse Colombo calls the everything bubble. But wages are not in a bubble, unless we count them against developing nations. Breaking that wage bubble, if that is how the Fed looks at it, while propping up all the other bubbles, stocks, real estate, etc., has notorious effects on a disgruntled population. 

That population keeps accepting and rejecting people like Obama and Trump and the continual war boys, like Cheney and the late John McCain. 

None of those guys can fix the problem because it is not a political fix. It takes political will, however. If the politicians force central bankers to implement the fix, then wages could be protected while bubbles are popped one by one. It would not be necessary to pop every bubble at once. 

NGDP Targeting has its limitations as a way to fix things. Scott Sumner is one who does not fear almost massive asset inflation. This is why Mish and others who don't want a massive bubble popping have trouble with NGDP Targeting. Even the Council on Foreign Relations weighed in:

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Comments

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Bill Johnson 1 year ago Member's comment

Good read, thanks. But I'm curious to know if Mish Shedlock has a rebuttal for your respectful criticisms of his work.

Gary Anderson 1 year ago Author's comment

I am not really critical of Mish. He gets the difficulty of asset inflation on main Street, Bill. It is just that popping everything has unacceptable risks worldwide. I do not know his views about Palley. Thanks for the comment.

Beating Buffett 1 year ago Member's comment

Fascinating... thanks for sharing.