The Federal Reserve and price bubbles

Prompt: “Animal spirits”—optimism about and predictions for the current and future state of markets—can fuel increased spending on things like homes and financial instruments, even when those “spirits” are not based on concrete information. If the Federal Reserve or other government entities feel that increased spending on real estate isn’t merited by actual economic conditions and is leading to an asset price bubble, in your opinion, should they intervene?

Notes:

1. The role of the government in “popping” asset price bubbles is always controversial. Some believe the free market should be the sole determinant of prices, even if a bubble is forming. Others believe it’s the government’s duty to intervene.

2. “For rulers hold no terror for those who do right, but for those who do wrong. Do you want to be free from fear of the one in authority? Then do what is right and you will be commended.”