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Megan McArdle

Can We Blame the Fed for Asset Bubbles?

Two bubbles in a row is troublesome. If we’re indeed in a third, that starts looking more like a trend -- and not a good one.
He's been right before.

He's been right before.

Photographer: Andrew Harrer/Bloomberg

On Monday, my Bloomberg View colleague Mark Gilbert explored a fretful question: Are we in the midst of yet another asset bubble? Stanley Druckenmiller, who helped George Soros “break the Bank of England” in 1992, thinks we are. In a speech earlier this year, he said he's got the same bad feeling he had in 2004. The culprit is the same in both cases: the Fed, blowing asset bubbles, beautiful asset bubbles, with excessively loose monetary policy.

Gilbert ably summed up Druckenmiller’s remarks and the reasons to be worried about frothy asset prices, so I won’t try to replicate his fine efforts. Like Druckenmiller, I think there’s evidence that investors are “reaching for yield,” pushing into riskier investments in an attempt to reap the higher returns they got used to. Instead, I’ll focus on a different question: How much is the Federal Reserve really to blame?