Letting bubbles inflate and then fighting them when they burst actually worked for a while. That’s what makes it dangerous. It worked in the ’90s. But you shouldn’t read too much into this: This period was assisted by unusually favorable conditions. From 1981 until early last decade, commodities were in a bear market after a bubble in the ’70s and early ’80s. And interest rates were falling throughout the ’80s and ’90s, too. They almost never stopped falling. That made Fed policy look like it was working.
Bubbles can still happen without expansionary monetary policy. In the 19th century, you had bubbles in railroads, for example. But today, the Fed has created a bubble in everything — in every single asset class. This is an achievement even for a central bank. Stocks. Commodities. Bonds. Real estate. Gold. Everything goes up when the Fed prints. The only asset that goes down is the U.S. dollar.
