FEB 3rd Richebacher

BEST OF KURT RICHEBACHER
February 3, 2005
Unfettered bubble-driven consumer borrowing has been the main engine of U.S. economic growth. Whatever apparent strength remains depends entirely on the housing and mortgage refinancing bubbles. But both have passed their peak.
Expressing fears of rising inflation and of "excessive risk-taking" in the financial markets, the Federal Reserve has announced a sequence of rate hikes. Put bluntly, they have become afraid of the ever-inflating credit and asset bubbles they have unleashed with their ultra-low interest rates. "Measured" rate hikes are, in essence, a belated attempt to let the air gradually out of the monstrous asset and credit bubbles.
Given the preposterous leverage underlying all U.S. asset markets, the Fed is running an immense risk of bursting the asset and credit bubbles with a bang. The second major risk we see is that an unexpected sharp slowing of the U.S. economy will shake the prevailing complacency, with dire consequences for the economy and its financial system.
But what will happen to U.S. economic growth and its financial system without inflating bubbles? It is like pulling the rug out from under them.