Bankers Warn Fed of Farm, Student Loan Bubbles Echoing Subprime

They forgot to mention the stock market bubble.-Lou


Bankers Warn Fed of Farm, Student Loan Bubbles Echoing Subprime


A group of bankers that advises the Federal Reserve’s Board of Governors has warned that farmland prices are inflating “a bubble” and growth in student-loan debt has “parallels to the housing crisis.”

The concerns of the Federal Advisory Council, made up of 12 bankers who meet quarterly to advise the Fed, are outlined in meeting minutes obtained by Bloomberg through a Freedom of Information Act request.

Their alarm adds to a debate on the Federal Open Market Committee about whether the benefits from their monthly purchases of $85 billion in bonds outweigh the risk of financial instability. While Chairman Ben S. Bernanke has argued the program is worth pursuing, Fed Governor Jeremy Stein and Kansas City Fed President Esther George are among those who have voiced concerns that an extended period of low interest rates is heightening the risk of asset bubbles.

“Agricultural land prices are veering further from what makes sense,” according to minutes of the council’s Feb. 8 gathering. “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”

The Fed first lowered its target interest rate to near zero in December 2008 and has pledged to hold it there until the unemployment rate, currently 7.5 percent, falls to 6.5 percent. The U.S. central bank has also engaged in three rounds of bond purchases, known as quantitative easing, driving the Fed’s balance sheet to a record $3.32 trillion as of May 1.

Cropland Prices

Data compiled by the regional Fed banks have documented the rapid run-up in farmland prices, particularly across the Midwest’s Corn Belt. The Kansas City Fed said irrigated cropland in its district rose 30 percent during 2012, while the Chicago Fed reported a 16 percent increase.


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