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Strategies & Market Trends : Waiting for the big Kahuna
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To: Skeet Shipman who wrote (41873)7/19/1999 4:52:00 AM
From: Skeet Shipman  Read Replies (2) of 94695
 
QUESTIONS ABOUT THE EFFECTS OF BUBBLES:

Starting with the premise that except for IPO's and secondaries, capital in stock markets is in economic terms unused capital, not directly contributing to productivity. And noting the association of past and present bubbles to global financial crisis and recessions prior to the bubbles' collapse has let me to hypothesize the following questions:

Do bubbles disrupt normal capital flows?
Do bubbles cause misallocation of resources both financial and real?
Are bubbles a contributing cause of global financial crisis pier to their collapse?
Are bubbles a contributing cause of global recession areas pier to their collapse?

It is well documented that the collapse of bubbles cause the above. It is my hypothesis that the bubble itself is a disrupting causal agent. If this is so, should not stock market asset inflation have significant consideration in Fed policy? Given projections of future capital flows into the market is this not going to be a chronic problem? Should not consideration be given to additional Fed tools to deter market asset inflation?
Of course given my hypothesis the answer to all these questions is yes. IMHO

(In the dark art of economics cause and effect are almost inseparable and depend primarily on perspective; so I expect many economists would answer no. Although there are books on the subject most focused on the progression and collapse as the causal agent. If anybody has any good references please contribute.)

Skeet
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