Signs
What are some of the indications of an increased probability of a sharp crash/correction in the near future for the equity markets?
1. Sustained upward pressure on interest rates. The Fed needs to keep the foreign lenders happy in an environment where fiscal policy is out of control. The Republicans have taken profligacy and corruption to new heights and now the Chinese and Japanese central banks have become our sugar daddies. Not a pretty picture. Nor is the virtual war this has ignited between the U.S. and Euroland central banks.
2. As a result of the above, the dollar is finally deflating.
3. Despite having turned the White House over to the oil industry, or because of it, we're looking at sustained higher oil prices . . . at least until and unless the market crash translates into a sharp downturn in the "real sector," meaning we may have an opportunity to revisit discussions of Herbert Hoover and relearn why all those automatic stabilizers were so important to the health of a capitalist economy.
4. The manic depressive market psychology. Extreme optimism followed by extreme pessimism followed by a return to extreme optimism . . .
5. All major crashes have been preceded by a period of sustained redistribution of wealth from the idiot masses to the idiot rich. Sorry to be so pejorative, but when a majority of ordinary voters can be suckered into voting for George W. Bush (or allow the votes to be rigged so that it appears that such is the case) and most rich beneficiaries of Republican largesse are less farsighted than George Soros and Warren Buffett (who both recognize the destructiveness of current policies) then the only term I can think of is "idiot," much as I like to believe we're smarter than that. The truth is that most of us wouldn't recognize self-interest if it hit us in the face. There's a good reason the Chinese government is providing financial support for U.S. military adventurism/imperialism. It is weakening the United States and strengthening China. The same result happens when we allow corruption to dictate economic and regulatory policies (including the "awarding" of federal contracts). A lot of supposedly very smart intellectuals are also behaving like idiots, thinking that China couldn't possibly want the U.S. to collapse because they need us to buy all those cheap toys, toasters, shirts, power tools, pdas, etc. Chinese leadership is not so short sighted as one might think.
6. Add to all the above the fact that sustaining the consumer spending binge requires continued high levels of borrowing in the face of downward pressure on incomes (profits have to come from somewhere -- an increased rate of exploitation is one way to get higher profit rates, but that means workers need to work harder and/or longer for the same pay -- thanks to outsourcing and fifty plus years of sustained anti-union propaganda this has become easier to achieve). Something will eventually break. Why not sooner rather than later? The longer it takes to correct the deeper the correction will be. This means if we avoid the bitter pill this fall, it will be worse when it eventually does come.
7. Market crashes require a high level of faith in markets to not crash. Neoclassical economic theory usually rises to greater prominence before crashes. Today we're awash in neoclassical jibberish. In fact, the quantity of neoclassical talk to be heard on the airwaves and in new books is at its highest level since before the so-called Great Depression. Economists who actually understand the economy, the complexity of institutional behavior, etc. are fewer and less likely to be heard these days. These sorts of things have a way of getting corrected when the reality that economic relationships are not grounded in magic resurfaces (such as through a deep recession or depression).
1. Sustained upward pressure on interest rates. The Fed needs to keep the foreign lenders happy in an environment where fiscal policy is out of control. The Republicans have taken profligacy and corruption to new heights and now the Chinese and Japanese central banks have become our sugar daddies. Not a pretty picture. Nor is the virtual war this has ignited between the U.S. and Euroland central banks.
2. As a result of the above, the dollar is finally deflating.
3. Despite having turned the White House over to the oil industry, or because of it, we're looking at sustained higher oil prices . . . at least until and unless the market crash translates into a sharp downturn in the "real sector," meaning we may have an opportunity to revisit discussions of Herbert Hoover and relearn why all those automatic stabilizers were so important to the health of a capitalist economy.
4. The manic depressive market psychology. Extreme optimism followed by extreme pessimism followed by a return to extreme optimism . . .
5. All major crashes have been preceded by a period of sustained redistribution of wealth from the idiot masses to the idiot rich. Sorry to be so pejorative, but when a majority of ordinary voters can be suckered into voting for George W. Bush (or allow the votes to be rigged so that it appears that such is the case) and most rich beneficiaries of Republican largesse are less farsighted than George Soros and Warren Buffett (who both recognize the destructiveness of current policies) then the only term I can think of is "idiot," much as I like to believe we're smarter than that. The truth is that most of us wouldn't recognize self-interest if it hit us in the face. There's a good reason the Chinese government is providing financial support for U.S. military adventurism/imperialism. It is weakening the United States and strengthening China. The same result happens when we allow corruption to dictate economic and regulatory policies (including the "awarding" of federal contracts). A lot of supposedly very smart intellectuals are also behaving like idiots, thinking that China couldn't possibly want the U.S. to collapse because they need us to buy all those cheap toys, toasters, shirts, power tools, pdas, etc. Chinese leadership is not so short sighted as one might think.
6. Add to all the above the fact that sustaining the consumer spending binge requires continued high levels of borrowing in the face of downward pressure on incomes (profits have to come from somewhere -- an increased rate of exploitation is one way to get higher profit rates, but that means workers need to work harder and/or longer for the same pay -- thanks to outsourcing and fifty plus years of sustained anti-union propaganda this has become easier to achieve). Something will eventually break. Why not sooner rather than later? The longer it takes to correct the deeper the correction will be. This means if we avoid the bitter pill this fall, it will be worse when it eventually does come.
7. Market crashes require a high level of faith in markets to not crash. Neoclassical economic theory usually rises to greater prominence before crashes. Today we're awash in neoclassical jibberish. In fact, the quantity of neoclassical talk to be heard on the airwaves and in new books is at its highest level since before the so-called Great Depression. Economists who actually understand the economy, the complexity of institutional behavior, etc. are fewer and less likely to be heard these days. These sorts of things have a way of getting corrected when the reality that economic relationships are not grounded in magic resurfaces (such as through a deep recession or depression).
posted by Satya | 3:51 AM
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