The Fed is clearly involved in a concerted program to reflate distressed assets (most notably housing) that has spilled into just about every type of investment (and a few that have not traditionally been investments, namely commodities).

By definition, a bubble is a massive price distortion in certain types of assets. That is already not a good thing. If you believe in markets, you believe in the value of price mechanisms because they lead to efficient allocation of goods and services and help channel investment funds to productive uses. At a minimum, bubbles are bad because they suck capital into seriously suboptimal uses at the expense of better ones. So ANY defense of bubbles has to be regarded with considerable skepticism. Bubbles are bad even when they fall short of the standard of wrecking an economy, which appears to be the base line Mishkin is using in his FT piece.

What is truly disconcerting about Mishkin’s remarks is that, even though he is no longer at the Fed, they probably represent conventional wisdom there. And that means the officialdom has gained perilous little insight from this disaster.