you're quite right it ignores that outlook. because the 9 trillion in private sector debt that were added over the past five years alone mainly went toward consumption, speculation and malinvestment. for instance the telecom investment binge has turned into a giant black hole...they bought all those routers, switches and licenses on credit, with nothing to show for it in terms of cash flows (600 billion in new telco debt created in 2000 alone, probably the biggest malinvestment binge of all time considering the result).
in a similar vein, look e.g. at the share buyback mania within the mania...that was an egregious misallocation of capital.
but instead of listing all the examples (the two above are among the more glaring), it is clear that when a central bank artificially keeps interest rates below what the market would dictate over an extended period, malinvestment begins to accumulate. and THIS CB has done more than just that...it has introduced moral hazard into the financial market place, creating never before seen distortions (even the 'experts' that were happily predicting Nasdaq 6,000 or 10,000 or any other absurd number one can think of slightly more than a year ago are now in hindsight calling it a bubble)...the money that was spent on virtually every safe a handful of internet IPOs has been wasted...it is capital that COULD have been used for productive purposes, but wasn't.
of course there HAVE been instances of wise investment decisions, no doubt, but generally an artificial credit induced boom distorts the entire economy, and the longer such a boom lasts, the greater the distortions as well as the eventual bust. please note, the collapse in the Nasdaq index over the past year was the fastest and deepest of its kind in over 70 years...only the transportation average of 1931 can hold a candle to it.
it should be obvious from that fact alone that the allocation of capital wasn't very wise, in general. |
