<story><title>Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020</title><url>https://www.bloomberg.com/news/articles/2018-06-07/bernanke-says-u-s-economy-faces-wile-e-coyote-moment-in-2020</url></story><parent_chain><item><author>coliveira</author><text>The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.</text></item><item><author>smallnamespace</author><text>The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary &amp;#x27;contraction&amp;#x27;) is more or less unprecedented (we&amp;#x27;ve never seen it happen in modern times in the US or any other large developed economy).&lt;p&gt;The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed&amp;#x27;s job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.&lt;p&gt;Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.&lt;p&gt;This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it &lt;i&gt;much&lt;/i&gt; harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.</text></item></parent_chain><comment><author>AnimalMuppet</author><text>&amp;gt;  Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929.&lt;p&gt;And 1893, and a bunch of other times.  But that might also be called the &amp;quot;business cycle&amp;quot;.  This &lt;i&gt;nice tame&lt;/i&gt; business cycle that we&amp;#x27;ve come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.</text></comment>
<story><title>Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020</title><url>https://www.bloomberg.com/news/articles/2018-06-07/bernanke-says-u-s-economy-faces-wile-e-coyote-moment-in-2020</url></story><parent_chain><item><author>coliveira</author><text>The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.</text></item><item><author>smallnamespace</author><text>The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary &amp;#x27;contraction&amp;#x27;) is more or less unprecedented (we&amp;#x27;ve never seen it happen in modern times in the US or any other large developed economy).&lt;p&gt;The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed&amp;#x27;s job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.&lt;p&gt;Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.&lt;p&gt;This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it &lt;i&gt;much&lt;/i&gt; harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.</text></item></parent_chain><comment><author>pascalxus</author><text>Yes, but they should have started increasing interest rates at least several years before they started.  They kept the party going too long.  And when we get the next hangover, the interest rates will already be too low to zero.</text></comment>