Why do we trust this guy?

Bernanke was on stage again today and said the following:

Federal Reserve Chairman Ben Bernanke said Monday the issue of asset market bubbles remains one of the biggest challenges facing policy makers, though he added he does not see anything in the U.S. markets right now that concerns him.

"It's extraordinarily difficult to tell, but it's not obvious to me ... there are any large misalignments currently in the U.S. financial system," Bernanke said.

He was addressing the difficult issue of what policy makers should do when confronted with an asset market that appears to be rising out of step with what fundamentals suggest. As he and other policy makers have said before, Bernanke noted asset bubbles are a "very, very challenging problem" and it is very difficult to determine whether a market has lost its bearings.

Let’s step back in time, shall we…

July 2005

NTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.

He didn’t see the bubble then. He doesn’t see the bubble now. It may be time to start looking to other people… people who actually saw this last crash coming. Because of extreme government intervention (stimulus, bailouts, etc.) the last "Bubble" was not allowed to deflate. We are setting ourselves up for a much bigger crisis in the future. Get ready.