Andy, i disagree with one point. in the cited examples ('73-74, Japan) the economic problems only became apparent as the respective stock market declines were already well underway. in Japan, the bubble itself lay at the heart of the economic problems that ensued after it burst.
the US bubble, even though AG still doesn't want to publicly admit that it is one, shares many of the Japanese bubble's characteristics.the main feature is the extreme degree of leverage in the system. if and when the bubble truly bursts, the economic expansion will come to a screeching halt overnight imo.
an economy that creates $ 5,30 in new credit for every $1 in economic growth (which is exaggerated anyway due to hedonic pricing), runs a current account deficit approaching 5% of GDP and has the biggest stock market bubble in history (in terms of p/e's, price/book, and market cap to GDP) is normally not well equipped to deal with such a shock. i am not saying that it is happening NOW...no-one really knows that. but i think it WILL ultimately happen. the giant pyramid of leverage and derivatives could conceivably deliver a systemic shock that can't be printed away by the Fed.
note, nothing of this has anything to do with PPI or CPI inflation (both understated btw, due to the peculiar statistical methods employed by the BLS). inflation's true character is an expansion in the money supply beyond the needs of the economy. if it is not channeled into goods and services prices, it is channeled into asset prices, which is in effect what has happened.
don't kid yourself that the Nasdaq is 'worth' a certain amount, or that p/e's ranging between 50 and infinity are somehow 'normal' due to our great new era. they are simply distortions brought on by an uncontrolled expansion in the money supply.
best regards,
hb |
