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How to manage assets bubbles?

Comments on Alan Kohler “China's bubble to build on”, 16/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/China-property-bubble-GDP-interest-rates-pd20100416-4JSW4?OpenDocument&src=sph

The most important matter when facing an asset including properties bubble is what is the best to do.

To burst the bubble completely may not necessarily be the best course of action, because of its effects on other parts of the economy, including financial health, consumption and etc.

It may be that the best course of action is to manage the bubbles if it can be done, so to prevent them from becoming worse, but at the same time minimise their negative effects.

Given the existence of inflation and increases in assets values over time, keeping the bubbles static may prove to be a better policy option after all.

This is no different from when you have inflation, the best policy should be to keep price stable that is to prevent further inflation, as opposed to having deflation.

Of course, it has some political economy effects, that is, different people will be affected differently, no matter what course of actions is taken.

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