We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
I mostly agree, and tend to feel that the Fed should not exist, but investment bubbles have always existed. Isaac Newton lost his entire fortune in a stock bubble, foolishly. Human nature. Hope, greed, fear, etc.
Bubbles are more or less the "norm" in economics. Big and unexplainable large bubbles are not "normal" and can usually be traced back to poor regulations/policies or outright criminal activity. What is far worse though is a bubble that is made worse by Government meddling i.e. Keynesian economics. The government extended the economic crash or great depression to 11 years more or less and probably would have doubled that length of time if WW II didn't end it. Our current depression now exceeds 5 years with little if any improvement thanks to the very same policies that FDR used in the great depression. SO what's next for us? 6 more years of depression or a world war?
I think Didier has some intriguing ideas, but we have to remember centralized management of anything, including adjusting for 'bubbles' is going to lead to unintended consequences. When we run into these unintended consequences, the central authority will seek to minimize those consequences, leading to more consequences, and so on.....
I prefer to think of the idea that bubbles are imaginary. That is to say I know they exist, but while they are bubbling, they are bubbling for a reason. That reason is the irrationality of humans, and the belief that all things interact in a linear, as opposed to asymmetric fashion. When something is rising in price, the obvious bias is to believe it's always going to go up. When it's going down, the bias is to believe it's likely to only go down.
JP Morgan had it right. The market will fluctuate. While the Fed can cause directional biases to be magnified, it can't keep things going in one direction forever.