Watch the rise of asset price bubbles as inflation risks increase.
On the other hand, too lax policy, such as keeping the real deposit rate deeply negative, could fuel asset price bubbles that, by definition, eventually burst.
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On Friday, the Fed Chairman warned of excessive risk-taking in financial markets, according to the FT, and reiterated the Fed is aware of the risk of inflating dangerous asset price bubbles.
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Their immediate dilemma is how to sustain recovery without inflating credit and asset-price bubbles.
Mr Greenspan has long held that interest rates are not a good tool for bursting asset-price bubbles.
Whether central banks should respond to asset-price bubbles is one of the hottest debates in monetary policy.
Many central bankers consider it unrealistic to make prevention of asset-price bubbles a specific objective of systemic oversight.
Banking crises, usually associated with asset-price bubbles (because that is where the risky lending goes), nearly always follow this pattern.
The Fed's preference has been to deal with the after-effects of asset-price bubbles rather than to try to prevent their formation.
Perhaps the main risk now facing emerging Asia is not feeble demand in the West but inflation or asset-price bubbles at home.
But you go on to suggest that central bankers are powerless to stop the development of asset-price bubbles short of a blunt interest-rate increase.
Other countries such as Britain, Sweden and Japan in the late 1980s have also seen sharp slumps in net saving when they experienced asset-price bubbles (whether in housing or stockmarkets).
Mr Bernanke is also against intervening to deflate asset-price bubbles.
At the moment the most worrying distortion is that the low return on bank deposits is fuelling asset-price bubbles as households seek higher returns by buying shares and property.
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By producing goods more cheaply and so helping to hold down inflation and interest rates in rich economies, China may have indirectly encouraged excessive credit creation and asset-price bubbles there.
How policy makers respond to possible new asset-price bubbles will be crucial in determining whether the rest of this decade is a replay of the '70s, the Noughties or something more benign.
What's more, the evidence suggests higher inflation is depressing growth by eating into consumer incomes while ultra-low interest rates are crushing savers and inflating new global asset-price bubbles ironically, including potentially in Canadian residential property.
The previous day Liu Mingkang, China's chief banking regulator, blasted Washington for its low interest rates and for the falling dollar, which, he claimed, was encouraging a dollar carry trade and global asset-price bubbles.
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In just a few chapters, he outlines the forces that brought the world to the brink of a bust: a house-price bubble boosted by runaway mortgage lending in the rich world, particularly America, a lightly regulated global financial system that found ever-more creative ways to speculate on rising house prices, and macroeconomic policymaking that was far too laid back about the dangers posed by asset-price bubbles.
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Most bubbles in asset markets are bubbles in price, with too much money being thrown at too few earnings.
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The combination of state-led investment decisions in the emerging world and a parochial focus on price stability in the rich world produced serial asset bubbles rather than efficient capital allocation.
They cause asset "bubbles" when they move in massively and asset price destruction when they exit in panic.
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