Saturday, November 14, 2009
President Obama is in Asia, talking with various trading partners about the future of the global economy, the topic of America's biggest exports - U.S. dollars and asset bubbles - likely to come up during these discussions unless, somehow, they've all missed comments coming from last week's APEC gathering as reported in the Wall Street Journal.
Bubble Fears Surface at APEC GatheringYes, we do seem to be turning more and more Japanese, at least in regard to the policy of "extend and pretend" when it comes to assets held on banks' balance sheets.
The U.S. has limited ability to stop the dollar's recent decline, World Bank President Robert Zoellick said Friday, as he and several Asian leaders expressed concern that global stimulus measures could be inflating asset bubbles.
"Given the role of the dollar, frankly, there's not a tremendous amount one can do other than try to run a good, sound policy and restore the U.S. economy to growth," Mr. Zoellick told a panel discussion on the sidelines of the Asia-Pacific Economic Cooperation forum annual summit.
Several expressed concern that the global stimulus, especially the flood of liquidity pumped out by central banks, could create asset bubbles. "What central banks did in the face of the crisis is just open the tap of liquidity," the World Bank's Mr. Zoellick said. The increased liquidity could lead to inflation, such as in commodities. Asset bubbles "could undermine confidence in 2010," he said.
Hong Kong Chief Executive Donald Tsang said he was he was "scared" that the U.S. may be following the example of Japan -- tackling its recession with overly loose policies that could, in turn, inflate asset bubbles
It seems to have become conventional wisdom that, if we can only get asset prices back to their 2007 levels, all our problems will go away.