Can the U.S. Economy Be Made Bubble-Proof?

Actually, Jack Lessinger predicted the housing crash years ago. As for bubbles, there is a huge difference between the tulip mania and the overheated housing market. There is underlying value in a home. Tulips? Not so much. Laszlo Birinyi wrote a report on this years ago. He would be a great TT guest btw.

sounds just like a heroin addict. it gives great highs until the last one that kills you.

Fear and Greed Fear and Greed

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Bubbles are caused by Mis-info idiots. Pure fools powered by greed.

David, yes there is underlying value in a home. So what. What if housing prices were double tadays value. A bubbles a bubble.

will we ever learn? 0, no , sorry. a bubble occurs when the federal reserve system releases monetary expansion influence onto the private economy. it stops when the that stops. this is a basic fact 17 year olds can tell me this now days, were as it used to be a big secret oooh. there is no institution (note here i say institution) with more control (albeit varying) over monetary policy than the Federal Reserve so in essence Bernanke was correct the housing price was driven by Economic growth the Economic "growth" driven from the ultra "low" interest rates that stimulated the credit expansion in previous years. So he wasn't technically incorrect, because most simpletons that do not understand economics don’t see the difference between “Credit expansion growth” and “Fundamentals”. Too them that is fundamentals. As for the other guy I’m not sure what he is talking about, something like, you have to learn from a mistake but you won’t? Because of the “mystic” of the magical “bubble” nope. it’s people that understand economics ripping off people that don’t, that's what a "bubble" is. In that case maybe I totally agree.

NOW Shiller is talking rubbish. All bubbles (with the exception of the Tulip bubble) have been on account of excessive circulation of paper money. The Federal Reserve is the biggest counterfeiting operation peddling fake money using the monopoly powers that have been conferred by the big Statist Woodrow Wilson. Only a Welfare Statist who believes that individual rights are a myth and that Government is the ultimate owner of everything including the lives and bodies of the citizens of the country can come up with the kind of ridiculous "argument" put forward to try to justify bubbles. Shiller's statement just proves that for all the brilliance in a field as complex as economics, a man can have a very weak and in fact an inverted moral framework. It's best he stops talking lest he comes up with more rubbish.

@David: I don't see how you can say there was no underlying value in Tulips. That's what triggered that bubble -- huge demand for the exotic (at the time) tulip. Just because a good is perishable doesn't mean there's no fundamental value. @Yahoo! Finance User: "because most simpletons that do not understand economics" I know argument from authority is bad, but really, you're suggesting Robert Schiller does not understand economics? A professor of economics at Yale who has published two prescient books on U.S. bubbles, and co-created one of the most widely used indexes to track home prices, does not understand economics?

Phillip, yes, agree that a bubble is a bubble; however, I tire of every bubble discussion by TT and others beginning with the Tulip Mania. There is no underlying value in tulips. In housing and stocks there is underlying value.

Hit the nail on the head. Who says that bubbles MUST happen - your high school text book? The malinvestment caused by too much money/credit is the source of the problem. So money supply growth should be left to a hand calculator that grows it 2% a year for population growth. The rest is interference by the Fed and fiscal policy inflation. Of course, if you are plugged into the info mechanism that is the rain-maker of these policies, you can do extremely well for yourself at the expense of the rest of the country...

To say that Bubbles are a symptom of a vibrant financial system is equivalent to saying that consuming Potassion Cyanide is an excellent way to get a good taste of life. To get a confirmation that Shiller is talking rubbish and to learn why our financial system (the entire system) is bankrupt, try reading "The Mystery of Banking" by Murray N Rothbard and "The Minority Report of the Gold Commission" by Ron Paul (along with another author) published in 1982 or 1983. It is very eye-opening to realise that Government, in particular the concept of the "Welfare State", is responsible for all economic bubbles and the hardships it foists upon ordinary people.

I predicted the top of the housing market in 2003. I was right, the 2003 numbers were about where we'll end up. But so what!

It will happen again, and again, and again. Making money cheap is not what causes bubbles. The perception of an ever increasing asset is a cause. The net result of wealth/savings built in the mean time causes inflation not bubbles. Fiscal policy played an important role this time around..it made homes look more attractive; aiding and adding into people's perceptions. But wait for its come back, and maybe another stimulus check come back.

The FED has not simply been printing money which in itself would be inflationary. It has been swapping out one set of assets for another. Albiet not the best move either as a portion of this portfolio is going to go sour, but it is not probably going to be more than 8-10% overall. The FED has saved the day, otherwise we would have had a complete financial collapse especially with all the credit default swaps that have been issued and are overextended. Greenspan did keep interest rates too low for too long. It was part of the problem, however, mortgage banker/investors would have been issuing subprime and Alt-A paper anyhow and it probably couldn't have been prevented. There needs simply to be better regualtion with the mortgage brokers/bankers to ensure that the consumer is well aware of the risks that they are taking. However, anybody with a Finance degree knows that when the historical rate of return on real estate runs at only 3-6% per year and it doubles in about 3 years that it is bound to return to it's historical average. Nobody could afford to keep this expansion going as it ran too far too fast and there is nobody left to sell to. To me, this was all very obvious. You can only sustain abnormal returns for so long and then pow, you it's over and it's over quick. Apparently nobody learned form the late 90's with the Tech bubble. Same thing. A market is just a market and there was rotation into real estate from Tech. Now it's in commodities...

The next bubble to break is the Obama craze

Shiller's argument misses one key facet. There are people who have incentives to create and pro-long bubbles. If the stock market is in a bubble, many traders don't care and shouldn't care as long as they think the bubble will continue. It's the classic greater fool theory. It does not matter if an asset's price does not align with its fundamentals, what matters is if there is someone else who will pay a higher price in the near future.

Don Ho predicted the bubble years ago.

Shiller is pretty much a joke. He only reports information AFTER it happens. Not once did he predict where housing would go. All he did was say there was a bubble. Big deal. Yet, he is interviewed because the media has made him and other jokers celebrities. Blodget continues to promote the worng people who never warned anyone of anything. All he cares about is getting "celebrities. Mike Stathis in his 2006 book "America's Financial Apocalypse" predicted everything, including the collapse of Fannie, Freddie and the banks and he predicted a decline of real estate prices of 30%. Stathis is clearly the leading expert. I have heard him on the radio a few times. He is convinced he is being censored by the media and I agree. You will never get the rtuth in a timely manner from the media. They are liars and have their own agendas. Just look at Blodget. This guy screwed millions of investors out of billions of dollars with his BS stock recommendations. Wake up people. Stay away from the media. Find the real experts and follow them or you will continue to be screwed.

Americans love bubbles because it enables people who position themselves advantageously to make a lot of money in a short period of time. Let's face it, nobody wants to make a living and retire at 65 anymore, especially when you can ride the momentum to get rich in a few years and cash out, as many tech entrepreneurs did in the '90s and many mortgage brokers did in the housing bubble. Last weekend I met a former mortgage broker in his early 30s who cashed out and is traveling the world, why would he want to work hard and wait another 30 years to be able to do that?