I recently read an article about money, central banking and the current crisis. Here's a part I found interesting (beware bad translation, my bolding):
So why not taking prices of shares and housing into account when estimating inflation/money supply? Isn't that by the way the two most common markets creating bubbles? Seems such bubbles could be mitigated or even prevented if the heads of Central Banks issued warnings and/or raised rates whenever those markets got hotter.
Central banks can't create infinite amounts of money. Too much new money will likely erode the value, purchasing power will decrease and so inflation becomes a fact. Because of this, Central Banks watches price trends closely.
But perhaps they made a crucial mistake, according to Matt King [interviewed Credit Analysis responsible at Citibank].
-They've only focused on prices of goods and services but not prices of shares and real estate. If they'd done that the credit expansion would not have happened as quick.
So why not taking prices of shares and housing into account when estimating inflation/money supply? Isn't that by the way the two most common markets creating bubbles? Seems such bubbles could be mitigated or even prevented if the heads of Central Banks issued warnings and/or raised rates whenever those markets got hotter.