The head of economic research for Indonesia's central bank says that the country's stock market is in a bubble, according to an article from Bloomberg. Officials are considering capital controls to stem the flow of hot money into Indonesia's market and avoid longer term damage to the economy.
“The actual stock price now is actually exceeding the fundamental value,” Perry Warjiyo, who was a member of the International Monetary Fund’s executive board before taking his current post in July 2009, said in an interview in Jakarta.
Other governments have been reducing liquidity recently too, including those in India, Australia, and China.
The Indonesian central bank has touched what amounts to the third rail in American politics. No central banker or government figure in this country is allowed to question the valuation of American markets, even after serial asset bubbles have led to damaging misallocation of capital and caused our current debilitating debt crisis. Instead, the world's reserve currency central banker spends his time justifying ever looser monetary policy, even as he exports inflation and blows up new bubbles in equity and commodity markets at home and around the globe.
Bernanke, and Greenspan before him, professes to be unable to spot an asset bubble in progress, something the Indonesians seem to be able to do. Amazingly, when the bubble starts to pop the fed has no problem spotting it immediately and leaping into action to fix the problem (ie, reflate the bubble). No one seems willing to admit that bubbles have become the status quo of our markets for the last 15 years, and the crashes are simply the economy's attempt to return them to a sustainable state.
Unfortunately, Bernanke is unable to keep overvalued asset prices up on a real basis, so he has decided to create the perception of growth via inflation. Over consumption has destroyed America's savings and elevated asset prices are necessary to maintain the illusion of a sound national balance sheet. Otherwise, foreigners would stop loaning us cheap credit and politicians wouldn't be able to spend freely. Just as our banks can't tolerate mark-to-market accouting for their mortgage assets, our consumers and pension plans and insurance companies can't tolerate true equity valuations. The truth would reveal that our liabilities far outweigh our assets. We will not begin repairing our national balance sheet until we accept the concept of growth through savings, sacrifice, and deferred consumption.