Fed vs. bubbles?

There is no problem created by the Federal Reserve that the Fed can't make worse.  As evidenced by the news today…

The US Federal Reserve is reconsidering the way it deals with asset
price bubbles in the wake of the housing and credit bust, in a move
that could see the central bank using regulation – or even interest
rates – to fight unjustified increases.

Top officials are
re-examining the Alan Greenspan doctrine that central banks should not
try to tackle asset bubbles and should focus on mitigating the fallout
when they burst.

The amazing thing about this Financial Times story is that nowhere is it acknowledged — nowhere is the possibility even broached — that the Fed itself just might be responsible for creating asset bubbles.  Bubbles evidently are organic things, the product of spontaneous forces that have nothing to do with the creation of excess money and credit.

So now we're left with the question of what new powers the Fed might choose to assert if it opts to start "using regulatory policy more aggressively to try to contain bubbles."  Frankly, the mind boggles.  I'm sure the folks at GATA have some ideas.

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