Blog Editor’s Note: The largest expansion of central bank-issued fiat currency in the history of mankind attacking the greatest financial blowout ever encountered in terms of size isn’t creating an asset bubble? If so, it’s because they can only patch the balloon so many times before it can no longer hold hot air, and that’s all it ever was anyway.
NEW YORK (Reuters) – The Federal Reserve’s low interest rate policy was meant to encourage investors to move into riskier assets and there are no signs currently that an asset bubble is building in the United States, the central bank’s number-two official said on Monday.
Fed Vice Chairman Donald Kohn said the recent rise in asset prices reflects several factors: the reversal of the “extreme panicky conditions” of late 2008, the turnaround in economic prospects, and ultra-low interest rate policies in the United States and other key economies.
“One of the purposes of these policies is to induce investors to shift into riskier and longer-term assets in order to lower the cost and increase the availability of capital to households and businesses,” Kohn said at an event co-sponsored by the Kellogg School and Northwestern University in Chicago.
The resulting easier credit is designed to encourage spending during a period when output is expected to remain well below economy’s capacity for a prolonged period, he said.
