Wray on the Commodities Bubble and the Coming Crash

“The problem is that we have way too much money chasing way too few good assets. The total amount of financial bets out there is way over $600 trillion around the world. There just aren’t enough good investments to absorb that amount of money. So, what happens is they blow up–one asset after another. Then, those inevitably crash.”  Jumping off from his latest post, Randall Wray was interviewed at Benzinga regarding his arguments about a commodities bubble and the potential for a new crash.

Wray suggests in this interview that, in the face of another crisis, Washington may be constrained in its ability to come to the rescue as it did in 2008:

The Dodd-Frank legislation makes it very difficult to repeat that performance. I’m not saying that they won’t find a way around the rules, or they won’t find a way to do it again. They might, but it’s going to be very politically unpopular. I’m not sure they are going to be able to do it again.

Once prices start tumbling, all of the asset markets are actually linked. Even though it’s not obvious, they really are. It will tumble across all of them. And it’s not clear that we will be able to stop it this time. At least, not as easily as last time.