In 2005, right near the peak of the housing bubble in the U.S., current Fed chief Ben Bernanke was asked if the house price escalation was of concern. He replied, "We’ve never had a decline in house prices on a nationwide basis. So, what I think is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."
In 2006, Bernanke said, "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."
In 2007, Bernanke insisted that there was not a problem with subprime mortgages;
"At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."
Our own central bank chief is equally blasé about Australia's housing bubble and the risks it poses to our banks. Bernanke has already proved horrendously wrong. Glenn Stevens will prove equally inept.
