Government Regulation and Bubbles

Politicians are having a heyday on how they intend to stop future financial bubbles. They succeeded with enacting Dodd-Frank.

Bubbles are man-made, enforced by government policy and regulation. They breed on human psychological extremes. And they feed on panic.

The onus and guilt may be thrust on private parties for political purposes, but bubbles exist only if government agencies permit them to do so.

Actually, it’s far better that the powers-that-be in government sit on their hands than “do something” in the way of remedies. The long-term in a bubble event often takes care of problems better than short-term panaceas.

Apart from those called in to do the short-term patchwork remedies, If there has to be basic blame for recent bubbles in the U. S., it can be placed on the heads of the governors of the Federal Reserve. They are the guilty, who have made money too cheap. That is always the fuel for a bubble.

Bubbles can be dampened when the availability of currency is tightened. However, the opposite monetary policy has been the story in U. S. bubble experience.