Transcripts

Asset Price Bubbles

SUSIE GHARIB: You probably heard about the real estate bubble or the tech bubble. Now we may have new bubbles to worry about. The recent run-ups in many markets have fired up debate about what's being called asset price bubbles. Is this a problem or just normal market behavior after a financial crisis? Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Watch out, there may be bubbles forming everywhere. Of course, we're not talking soap, but asset bubbles, like in the gold market or in Chinese real estate. And from Beijing to Wall Street, experts say low interest rates, courtesy of the Federal Reserve, are fueling a run-up in asset prices beyond what economics suggest is reasonable. Economist David Malpass sees the biggest bubbles in commodities.

DAVID MALPASS, PRESIDENT, ENCIMA GLOBAL: The reason for that is because, when the Fed pushes too much money into the system, the easiest thing for people to buy is commodities -- gold, oil, copper, things like that.

PRATT: Gold, oil and copper are all up sharply this year. There's also evidence of bubble trouble in emerging equity markets, with the Australian dollar and even the NASDAQ. Symptoms of frenzy are most obvious in Asia, where economies are recovering quickly. Still, global market expert James Sweeney says worries about new bubbles are overblown.

JAMES SWEENEY, GLOBAL STRATEGIST, CREDIT SUISSE: It's something to watch as we get into next year. If the recovery were very strong, you could see prices start to go up very sharply. But to date, we are still significantly below in nearly all risky assets price levels of a couple years ago.

PRATT: On Monday, Federal Reserve Chairman Ben Bernanke said he sees no evidence of what he called large misalignments in U.S. financial markets. But he also said identifying them is tough.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: You've just introduced perhaps the most difficult problem of monetary policy of the decade, which is how to deal with asset bubbles.

PRATT: Dealing with asset bubbles is critical because the bigger the bubble, the bigger the mess to clean up if it bursts and because excessive speculation means there may be less money available in areas that really need it.

MALPASS: Money is being channeled away from the growth, the job producing part of the U.S. economy and sent to foreign countries. It's being sent into commodities. That doesn't help Americans at all.

PRATT: Those most worried about bubble trouble say the solution is simple. The Fed needs to start raising rates sooner rather than later. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.