Bill,
Yes, I'm aware of that opinion as to the cause of the Great Crash, but I find it a bit facile and simplistic.
Galbraith, in his classic book on the crash, couldn't find a single, neat cause. And the best mass-market modern work, "Freedom from Fear: The United States, 1929-1945," also doesn't subscribe to simple explanations.
To me, the best "reason" is given in Prechter's "At the Crest of the Tidal Wave" and repeated in one of Greenspan's speeches last year: that throughout history, sudden sharp changes in mass psychology have occurred...and, with it, sharp changes in the perceived value of stocks. You can't predict when it will happen, but it does happen and will, I'm sure, happen again.
Galbraith went so far (as I remember..) to suggest that the automobile was a cause of the crash and depression. "Horseless carriages" meant that horse pastures suddenly became farm land -- on a huge scale -- which led to excess agricultural commodities, which led to a crash in commodity prices, which was eventually followed by a crash in equities. Who knows?
I'm sure historians will look back on this and try to explain both this recent huge rise in asset values and (I'm quite sure) the subsequent (ahem) "large retracement." I'll be surprised if there's a consensus of opinion on what triggered the eventual fall. But I'd guess that they'll agree that the Fed's massive credit expansion directly resulted in asset inflation.
best,
doug |
