Chicago Fed Asks "What Are Asset Bubbles" As Its President Calls For Even More QE

Tyler Durden's picture

Readers may know the Chicago Fed best for its president: arguably the greatest dove in the history of central banking, Charles Evans, for whom QEternity is so insufficient, it is just the beginning, and he is already looking forward to QEternity. In fact, just today he reiterated his support for QE3 for the second time since the program's announcement on Thursday the 13th (a day which will live in infamy), saying the recovery has so far been so "disappointing" (which at least means one can safely ignore all those pundits who claimed over the past 3 years the economy was growing, so roughly 99% of them) that the Fed should do "even more."

"With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy... We should not be resistant to policies that could move the unemployment rate closer its longer-run level, but run the risk of inflation running only a few tenths above our 2 percent goal."

Essentially, Evans, and the Chicago Fed, are explicitly stating that the Fed's actions instead of making the situation far more dire (which they have as we showed on Sunday when we demonstrated the ongoing massive deleveraging in the shadow banking system as a result of a total loss of confidence in a Fed-free economy, forcing the Fed to do ever more QE), are improving it.

So far so good. But where it gets scary is that just today, the same Fed, which is so sure about the affirmative impact of its actions, asks "what are asset price bubbles" (answer: always and without fail the direct effect of ultra loose monetary policy combined with unleashed animal spirits, but what do we know: we have no Econ PhD), confirming it has no clue what the adverse consequences of monetary policy are. And this is the Fed - one which does not grasp the very simple nature of asset bubbles in a fiat world - that is saying Bernanke should print until he literally runs out of toner cartridge. Why whatever can possibly go wrong?

It gets better.

The paper acknowledges that "For at least the past 25 years, the Federal Reserve has tended to follow an approach to asset bubble management in which there is little or no restrictive monetary policy action during the bubble’s formation and growth, but there is a prompt easing in the form of quick reductions in market interest rates once the bubble bursts." In other words the Fed is perfectly happy to have its policies result in something known as an asset bubble, which the same Fed admits it can't quantify, but not intervene until the entire economy is on the verge of collapse and then to literally throw the kitchen sink at the problem, an epic misconception which is at the basis of Bernanke's statement that he can cure inflation "in 15 minutes." We also learn something rather amusing about this Fed policy, subsequently known, appropriately enough as the Jackson Hole Consensus: "The intellectual foundation for this approach was the seminal piece by Ben Bernanke and Mark Gertler (originally published in 1999)." In other words, years before his infamous 'helicopter" paper, Bernanke was already espousing the free blowing of bubbles, consequences be damned.

Here is where it gets fun: the paper next admits: "The Jackson Hole Consensus appeared to work well until September 2008, when the financial system came close to a complete meltdown." Without say so directly, the Chicago Fed, which recall does not know what asset price bubbles are, implicitly admitted that it was the Chairman's own ideology which led to the epic crash that nearly wiped out the financial markets of the "developed" world, and has since pushed the world into the greater depression ever seen, one only offset so far courtesy of the ever greater risk, expected to hit $5 trillion by the end of 2014, that the Fed has onboarded on its own balance sheet. In essence the Fed has become the biohazard repository of only resort. It is this biohazard that is somehow expected to find willing buyers when the time to crash the market, i.e., tighten comes.

There are many more pearl of wisdom in the paper, some of which are the following:

  • History shows us that asset bubbles occur and that their bursting can be detrimental to the macroeconomy.
  • Evidence suggests that some bubbles can have a significant adverse impact on the macroeconomy when they burst.
  • [There is ]empirical evidence supporting the conjecture that stock market overvaluation—i.e., a bubble—can lead to overinvestment in the bubble sector.
  • Excess liquidity encourages lenders to be overaggressive and to underprice risk in hopes that proceeds from loan growth will more than offset any later losses stemming from the aggressive behavior.

And so on. But the punchline is this:

  • We still do not have a good definition of an asset bubble; and we still do not know how to identify them, what causes them to grow or burst, or what their welfare implications are. More research needs to be conducted to address these questions.

And this coming from the same Fed, whose president concurrently said more QE is needed, i.e., even bigger bubbles need to be blow.

Is there, thus, any wonder why nobody has any faith left in the US economy, and why everyone is convinced that the next epic market collapse, when the next bubble bursts, may very well be the final (hopefully this should go some way to explaining the age old question: why are there $2 trillion in cash on the sidelines and why do corporations have zero faith in the economy, and the market, and are unwilling to invest any cash in either capex or hiring).

Full Chicago Fed paper: "Asset price bubbles: What are the causes, consequences, and public policy options?"

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Abraxas's picture

I don't mind asset bubbles... gold is an asset, right?

Richard Chesler's picture

Is Dove a buzzword for Corrupt?


Cult_of_Reason's picture

The entire Fed board is all Obama appointees consisting exclusively of left wing Keynesian money printing retards.

It is sad, but the Fed is a bunch of political assholes.

It is fucking scary how political and reckless the Fed assholes are.

Dr Benway's picture

It's like an obese man, eating his way out of a bathtub full of beans, asking what flatulence is.

Precious's picture

Their motto: "I read it once, therefore I am."

Wraithlord's picture

I've posted this before, but it's more like "I print and therefore I am"

Pinto Currency's picture


First Bernanke with QE III (hasn't worked well so far so we need to double down), then Plosser , and now this.

These clowns are igniting what is going to be one hell of a run into real assets.

They are executing their failed theory to destruction - our destruction.

flacon's picture

We can wish, can't we?...


Charles Evans Jr. to Remain in Jail

flacon's picture

This one is not a joke - "the" Charles Evans says low rates my extend INTO TWO THOUSAND AND ELEVEN:


Chicago Fed's Evans Says Low Rates May Extend Into 2011

(Hey Charles... how's them 'low rates' working out for ya?! FUCKER!)

Peter Pan's picture

As one famous American once said, "we live in an age of guided missles and misguided men." I guess that sums up the Fed, although their money printing doesn't seem to be hitting the target either.

Sofa King's picture

When you see at least 5 morons in new Porsche Panemera turbos driving around, all in the course of one day, it's safe to assume the there is an asset bubble out there. Follow them to their place of business and there you will find the asset that is a bubbling.

Recently, that reasoning has failed me because each of those brain-dead ass- hats I followed went to some sort of medical lab or Community Health Action office. Strange, how can healthcare be a bubble?

Spirit Of Truth's picture

Belief in "animal spirits" would first require admission that man is an animal.  Bernanke and the like see themselves as gods and money as our master.  Tis all about the false religion of homo economicus and an irrational faith in Mammon.

dbomb12's picture

"We should not be resistant to policies that could move the unemployment rate closer its longer-run level"

That level being 0, by the time these masters of the universe get done the labor force participation rate will be non existent,

ebworthen's picture

"By the Castle of Gray Skull!  I deem more debt buying MBS's to improve career employment!"

pamriallc's picture

Simple reality remains that fiscal policy drives most of monetary policy. If you throw Bernanke at the head of the bus and politicians lean aggressively to one side and then to the other, the bus rocks......and Bernanke is asked to drive straight no matter what. His steering remains erratic, and we only blame the driver, yet the true back seat drivers here are the unchecked spenders who crush te future of America......our beloved politicians.

ebworthen's picture

It's those damn cats and dogs, couldn't possibly be the obese human PhD tax bean eateing fiat fart factory Ben Bernanke!

Caggge's picture

The Fed board and SCOTUS both should have term limits and both should be elected by the people. They are both positions that "the people" cannot afford to have sold to the highest banker...I mean bidder.

LongSoupLine's picture



Dove is a buzzword for full fucking retard on meth.

SafelyGraze's picture

it is just the beginning, and he is already looking forward to QEternity?.

infinity to the infinity and we're only just barely getting going

Georg Cantor for Fed Chair

max2205's picture

This shit is getting real.....fuckers are crazy. Was and are and will be

Xibalba's picture

subprime is contained....

qmhedging's picture

(Reuters) - A landmark U.S. fine for excessive speculation in the benchmark cotton futures market has revealed a startling new dimension to last year's blistering winter price rally: the biggest bull was a Chinese trader with a $510 million punt.

A little-known Shanghai firm called Sheenson Investments Ltd and its founder Weidong Ge, a former trader at China's vast state-owned agriculture trading company COFCO, have agreed to return $1 million in ill-gotten gains and pay a $500,000 civil penalty for exceeding federal limits on speculative bets in soybean oil and cotton futures, the Commodity Futures Trading Commission said on Tuesday.

It is the agency's biggest-ever "disgorgement" agreement associated with position limits and among the biggest civil fines, according to a review of a dozen such enforcement measures since 1995. It is the first against a Chinese firm.

The action is the latest sign that the CFTC is cracking down on excessive speculation harder than ever following years of political uproar over soaring grain and energy prices. Even tougher limits on commodity markets come into force next month amid the first big wave of Dodd-Frank financial reforms imposed following the 2008 financial crisis.

Offthebeach's picture

So political appointees fluffers, bootlicks, hacks, without productive skills, agree that boatloading politicos and their dependents with printed money is some umba-gumba, 50 pages of palaver thing to do. Who would of thought?
PhD, econ. Just another title for akneepad wearing, cum guzzler.

I miss Boss Tweed and his gang. They were honest enough to know they were thieves.

markmotive's picture

"Economics is hard"

-- Richmond Fed.

WonderDawg's picture

Yes, gold is an asset. If you own any, how are you going to feel if it's in a bubble, and the bubble pops? Still won't mind?

Theosebes Goodfellow's picture

Well, WD, the question is relative. In holding gold, (physical, as all else is at best questionable), you are actually betting that the gold bubble will outlast the dollar bubble. Methinks I'll see the dollar bubble burst,(devaluation), before the gold one does. As a contemporary said to me the other day, "A Mercury dime will always buy a loaf of bread."

jcaz's picture


BoNeSxxx's picture

I still prefer Fuck-Shites...

(does anyone happen to have a link to that clip?  That was one of my ZH favorites)

Citxmech's picture

Here are both:

PS  My translation of the Fed's policy:  "The beatings will continue until moral improves."

km4's picture

David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank"

Thank you David....nuff said !

stant's picture

i wish i didnt have children, the panic is so fun to watch, when i look at from a just me stand point

Vooter's picture're right. Luckily, I have no children...

Colonel Klink's picture

Ditto!  Only thing I have is a dog.  She listens better, costs less, and is actually useful without a bunch of back talk.

spentCartridge's picture

Same deal with my cat.


I love my cat :)

WonderDawg's picture

Pound for pound, cats are the badasses of the domesticated animal world.

aphlaque_duck's picture

"Revolutionaries should have as many children as possible." -- Ted Kaczynsky

mckee's picture

Miniature revolutionaries bubble!

HedgeAccordingly's picture

Asset bubbles lead to this... or could just be political posturing... 

chump666's picture

The man is clinically insane.

Cabreado's picture

You are in fact correct, but unfortunately (and "coincidentally") the DSM has been recently modified to the point where proving it becomes difficult.

It is a festering case in point -- one in which the definition of insane and all its variants (just call it "antisocial") has been declared out of bounds, by the perpetrators themselves, while the fallout of their self-absorption is on full display, ever more so... and while they are terrified (of simply being exposed), they have not a clue what has gone wrong or where the onus might lie.


chump666's picture

Yes he is nuts, but it's contagious which is very, very dangerous.  Check your Shanghai chart, China is starting to print...large.  Another huge wave of inflation is about to smash across the world ala China's print madness. 

 markets are now choking on liquidity.  May do the opposite and send stock south next few days.



BrigstockBoy's picture

Okay Chuck, your turn in the barrel again!

lailapa's picture

People should start getting ready for great trials ...for International Courts, where the current loan sharks shall give account.

Rothschild, Rockefeller, Greenspan, Bernanke, Trichet, Soros, Buffett –and other “kids” of the loan sharking- should not sleep calmly from this point on.

The world is getting “awake” from “narcosis” and pity to the one who shall be found to have made the wrong at the wrong time ...pity to the who “sedated” them to “rape” them ...pity to the one who shall be found holding the criminal “tube” ...pity to the one who threatened the future of the human kind.


Global Debt Crisis


max2205's picture

Again. What the fuck are they afraid of. Must be real fucking bad

Go Tribe's picture

"With the problems we face and the potential dangers lying ahead..."

Yeah, that little morsel caught my eye, too. Either there's a wall of shit coming our way, or they are simply lying through their teeth to strip Americans of all they hold dear.

sgorem's picture


Atlas Shrugging's picture

At what point does the term "Weapons of Mass Financial Destruction" get coined and seriously considered for the great threat to society that these people/ideologies actually are?

Some people just need to die due to the threat they pose to innocent people ...

Overfed's picture

You know what they say: some people are only alive because it is illegal to kill them.