Bernanke's Dilemma
The past decade has seen the market learn to move from bubble to bubble. The forming "next" bubble looks to be in commodities, and that's a problem for Benanke.
When the bubble was tech stocks, dropping rates led to lots of little startups, often with ridiculous business plans, but that paid their staff, rented offices, and bought computers and network gear. The economy was stimulated and the banks received deposits from workers to loan back to them.
When that blew up, the bubble moved to housing, which led to silly prices for land, and lots of unnecessary houses, but that paid the wages of carpenters, loan officers (sharks?), roofers, etc. The economy was stimulated and the banks received deposits from workers to loan back to them.
With gold, oil, copper, etc, at or near all time highs, the next bubble, that would be expanded by a drop in interest rates, is in commodites. The trouble here is that chasing that bubble adds few if any wage paying jobs, and drains deposits from banks that could otherwise be leant out.
Stimulating the current bubble could actually slow down the economy. |
