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| Economy |
| Liquidity Bubble's Impact on the Markets |
| 2009-08-31 |
| And while the tech boom of the late 1990's was driven by some very real secular shifts caused by unique technological innovation which, aside from the exuberance associated with some of the dot com names, brought a marked benefit to the global economy, how does one explain the subsequent ramp up as the credit bubble was being inflated and subsequently imploded? Simple - it was all liquidity driven. ... the underlying market did absolutely nothing for the duration of the entire credit bubble. And the scariest part of the chart is the tail end: even with the unleashed dam of liquidity, the market still has a massive retracement ahead of it before it can recover the adjusted losses it has suffered since the last credit bubble. Ironically a 50% run up in the S&P has not been enough to offset on an apples-to-apples basis the unprecedented liquidity efforts let lose by Chairman Ben. HT: Powerline for the link & ZeroHedge for the analysis. It appears that the addict has finally reached the stage of addiction where the drug no longer produces the desired result and the Fed, acting in true addict fashion, is presently engaged in administering ever more massive doses of the drug in hopes of recapturing its earlier impact. This will end badly. Charts at link (well worth your time). |
| Posted by:AzCat |
| #3 BP I'll see your conclusion and raise you one issue: the overbearing regulatory state. Cutting taxes is important, reversing the growth of the regulatory state is probably even more important. Levy & Mellor in their recent book The Dirty Dozen counted 70,000 pages of new federal laws, rules & regulations vomited forth by our federal government in a 12 month period which (IIRC) ended in March, 2006. Layer on fifty state & thousands of local bureaucracies staffed by millions of government do-gooders and you've a recipe for entirely depleting the dynamism that for so long drove the US economy. Until and unless the regulatory state can be significantly rolled back I doubt we'll see that dynamism return. Glenn Reynolds has a bit of commentary on the darker side of this problem over on Instapundit today. He and others are wondering about the selective enforcement of the laws now that there are enough laws to pretty much guarantee that every citizen is a criminal. |
| Posted by: AzCat 2009-08-31 20:07 |
| #2 "cutting taxes on working, employing, profiting and spending" GFL on that one, BP. :-( That's not even on the radar for the clowns in "charge" |
| Posted by: Barbara Skolaut 2009-08-31 20:00 |
| #1 You can think of the economy as a momentum equation i.e. the mass of money times the money velocity (how fast we exchange it with each other). We've got a money velocity problem, and they're trying to fix it by increasing the money volume! The trouble is that this is inflationary and inflation also destroys money velocity. What's needed is simple. We need to remove barriers to people exchanging their time, that means cutting taxes on working, employing, profiting and spending. |
| Posted by: Bright Pebbles 2009-08-31 18:41 |