Central Bankers Warn of Asset Bubbles

Sweden Shows Central Bankers How to Fight Next Asset Bubble ... Riksbank Governor Stefan Ingves (left) has raised the repo rate four times since July even as inflation remains below the bank's 2 percent target. House prices in Sweden jumped an annual 7 percent in the three months through July, the 15th consecutive period of increases. Sweden's central bank may set the direction for other policy makers as it looks beyond conventional inflation targets to asset-price growth in an effort to prevent the next bubble. "Not countering asset-price increases has been the conventional wisdom among central banks, but what has it actually resulted in?" said Tina Mortensen, an economist at Citigroup Inc. in London. "Surely the current crisis has made central bankers rethink policy; Sweden is actually facing this problem" because "asset prices and monetary policy are a hot topic," she said. – Bloomberg

Dominant Social Theme: Responsible bankers are concerned – and may have a solution.

Free-Market Analysis: The Bell recently analyzed "Inflation Heard Round the World" – and now an article (excerpted above) provides us with yet more concerns voiced by central bankers themselves. Swedish central bank head Stefan Ingves is worried about asset bubbles; the article tells us he has bumped up the repo rate considerably even the price inflation remains under two percent. The repo rate technically contracts the money supply.

Sweden thus becomes a country officially running counter to the inflationary trend, or at least one with a lead-banker who has claimed to take action. Europe, America and the BRIC countries are still following a stated pattern of loose money; serious price inflation is all but a given. The article quotes Johnny Akerholm, president of the Helsinki-based Nordic Investment Bank, as saying that the central bankers of most major countries areas are making a mistake: "We are practically re-running the same situation these days. Rates are low and the central banks are ‘printing money' while virtually all prices, except the consumer prices in industrial countries, are increasing rapidly." (more)