At long last I think I understand what we have been in the middle of. This is the first stock market mania in the United States that has occurred during a period of expansion of fiat paper money that is totally cut off from any sort of tangible backing. During the later nineteenth century, greenbacks were constantly being retired and money was becoming steadily firmer. A sound dollar eventually pulled down the speculation of the 1920s. In the period 1969-1974 there was still some international respecting of a gold standard. But right now there is nothing to stop the creating of new money in all sorts of forms, or to stop a lot of that money from going into equities, until interest rates outstrip or at least begin to equal the average return on equities. To say that implies the need for at least 10% federal funds rate, and we are nowhere near that. At the rate the fed is tightening, a quarter point per month, it could take a year to start to approach that.
We are indeed in a new era, not of unending prosperity and riches, but of financial folly on a scale never before possible.
On the brighter side, a lot of US Senators, both Republican and Democratic, are saying a lot of sensible things about our developing new energy crisis. |
