The Bernanke In The Big Housing Bubble

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CNN is reporting that Federal Reserve Chairman Ben Bernanke sees a need to further increase the short-term interest rate in an effort to stave off inflation.

Speaking to Congress Wednesday, Bernanke said that the economy could overheat if this action isn't taken. However, he also said that he doesn't think that there's any need to worry about a housing bubble pop.

His position was describe this way by CNN:

… He does not think there will be any sharp drop in housing value, as he said mortgage rates stay low despite recent increases, while strong employment levels should continue to support housing markets, saying that a, "leveling out or a modest softening of housing activity seems more likely than a sharp contraction."

What else would you expect him to say?

What federal chairman is going to sit before Congress and tell them otherwise? Can you imagine him, or anyone else in his position, saying 'Listen y'all, we gotta raise rates to head off this here inflation factor, and it's probably going to crash the housing market in the process, but we gotta do it anyway. The alternative is to do nothing, and boy, you don't want to hear how bad that could get. So, suck it up. Here we go. And, hey, good luck on your re-election campaigns this fall. Hoohah!'

I don't think so.

Instead, Bernanke said this:

"Gauging the economy's sustainable potential is difficult, and the Federal Reserve will keep a close eye on all the relevant evidence and be flexible in making those judgments … Nevertheless, the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately -- in the absence of countervailing monetary policy action -- to further upward pressure on inflation."

(STAGE DIRECTION: Eyes glaze over, Congressmen and Congresswomen take sips of water, camera flashes pop, break for lunch.)

— The Boy in the Big Housing Bubble