The Boston Federal Reserve recently came out with a report dated August 12 titled “Reasonable People Did Disagree: Optimism and Pessimism About the U.S. Housing Market Before the Crash.” (pdf)
A sentence from the abstract is particularly interesting: “We conclude by arguing that economic theory provides little guidance as to what
should be the “correct” level of asset prices —including housing prices.”
This is the latest effort from The Federal Reserve which questions whether asset bubbles, in this case the Housing Bubble, can be accurately identified as they form.
While one may argue as to whether economic theory can accurately spot asset bubbles, there definitely is a chronic need to do so – as well as to take proper remedial action. As I wrote in an April 8 post, “Our societal inability to spot and prevent asset bubbles is problematical.” We simply can’t afford to go through numerous asset bubble booms and busts. This issue is especially critical now given that there are numerous large asset bubbles currently in existence on a global basis.
A Special Note concerning our economic situation is found here
SPX at 1079.47 as this post is written