Martin Feldstein and Bob Rubin see bubbles in the economy, or so they warned in their joint op-ed piece for the Wall Street Journal. However, both are in the habit of spotting bubbles late.
Fed Chief Janet Yellen warned last month in her statement before Congress that some biotech and small tech stocks were overvalued, but some Wall Street traders said it wasn’t the Fed Chief’s place to start analyzing stocks. Well, in a sense, the critics are right. It seems that the stock market is not reflecting the state of the economy as the Dow Jones is robust but general economic recovery is still slow. Employment numbers are rising, but not to expected levels, wages are stagnant and participation in the workforce is at its lowest since the late 1970s, which is a sign many American would-be workers have simply given up.
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The question many are asking is where were Feldstein and Rubin when the housing bubble was rising in clear view of everyone, as mortgages were being thrown at the crowd like candy at a 4th of July parade and housing prices were reaching hyperbolic levels? Martin Feldstein, who was head of the Council of Economic Advisors under Reagan, and Bob Rubin, who served as Secretary of the Treasury in 1995-1998, in the period leading up to the bust of 2008, were probably doing more than a bit to inflate the bubble of yesteryear. While the housing bubble was growing, Feldstein was at AIG and Rubin was taking care of business at Citigroup, so who were they to complain then about mortgage frenzy and inflated housing prices?
Since the realities of the economy are at least somewhat detached from the bull market, it is likely that a popping bubble will hurt mainly those who are invested in stocks, and not the average American, who is more likely to fear having his or her job cut in the name of “streamlining operations” so those companies can beat analysts earnings estimates, see a rise in their stock prices, and please shareholders.
Is there a bubble? Perhaps. But Janet Yellen said so a month ago, and few cared, just as some pumped air into the hyperactive housing bubble that burst into the Great Recession.