Jon, I'd say people were making their best bets without much idea of where things would lead, though things did get conspicuously overheated by Y2K.
Meanwhile, re Mucho's Buy Range post: Message 17878875 <...if share prices do fall in the way that we expect, but there are no major economic side-effects, then economists will be able to argue that the Efficient Central Banker Hypothesis cannot be rejected, since there is no practical need to respond to overvalued stock markets. >
I expect that Uncle Al will be proven correct and there will not be a 1933, 1974 or WWII type depression [or major recession]. So far, so good and we into the third year of the biggest ever bubble deflation, so it's looking good.
In 1974 there was a world economy and especially USA economy hugely dependent on oil. Oil went from $2 to $12. Even then, the recession wasn't all that big a deal. There was a Vietnam war recuperation and war in the middle east and a cold war and lots of other bad stuff around the world [Chairman Mao was NOT selling much "Made in China" stuff].
In WWII, there was the biggest conflict ever, with more people killed by far than ever, and all sorts of huge disruptions and destructions, so of course there was a recession. Nobody cared about q or e then.
In 1933, there had been a huge market collapse, trade barriers and all sorts of mismanagement, with gold being a big deal, slow market clearing processes, high transaction costs, no huge derivatives market, Hitler was revving the troops up. Japan was marauding.
There are very big changes in the world. As Uncle Al, KBE, says, it's a global economy and he's managing the US$ in the context of that too, not just in New York. The authors' idea is that stockmarket valuation should figure in monetary management more than in the past.
They quoted 4 or 5 recessions/depressions following their q figures peaking as evidence. Which of course showed correlation, not causation. But accepting that of course there is some correlation [my wealth effect went away and so did a lot of spending, which dings the economy], how much stock market heights should be brought into monetary management isn't helped by their review.
Uncle Al did in fact raise interest rates as the markets rose. So contrary to what they say, he did respond to stockmarkets and irrational exuberance.
But their evidence that recessions follow bubbles was not all that good. 1974 and WWII and 1929 where big things not amenable to a bit of monetary manipulation to avoid the economic fallout. It's only the money system part of the economy he fiddles with for goodness sakes.
They presumably mean he should have whacked interest rates way up as their q figure zoomed to new peaks. But that would have caused house price problems, disrupted consumer loans and generally splattered the economy around as the US$ rose, putting exporters out of business even more than they already were [they were whining like steel mills without oil in their gearboxes which is even louder than a fleet of Koreans paying CDMA royalties - before their giggling sets in].
Well, whacking interest right up might not have made a dent in the Biotelecosmictechdot.com share price which was based on the 'e' those guys mention, not the measurable profits, assets [replacement value or depreciated value] or normal valuation ideas. It was blue skies stuff. And I still think they are right and that the value created by
Biotelecosmictechdot.com is going to be trillions and trillions of dollars as 6 billion people come on stream.
It's a global ball of wax/string now and Uncle Al's money is fighting for position in that very big deal. He has done a great job of retaining confidence in the US$ and the global economy, of which the US economy is a hefty chunk.
The way the US$ should be managed is to target the global average hourly rate, not some stock market valuation, USA unemployment rate, or basket of goods and services, whether hedonic or not.
The world's stockmarkets are small beer in the overall economics of 6 billion people [that's a guess, I admit]. Especially when the e value of those 6 billion people and the development of It and Biotelecosmictechdot.com are concerned.
They didn't mention It once. Nor did they mention human longevity. Nor increasingly secure property rights [taxes notwithstanding] around the world. Nor philanthropic investing as being more fun than golf in a wealthy world. Nor the surging heat in the human spirit seeking adventure. Nor the dramatically increased importance of intellectual roperty and sheer brainpower as economic forces - those having no asset value and replacement value is not possible without 20 years of production of the next brain and demand for those brains is increasing [hence the constantly bemoaned increasing gap between the haves and have-nots; which ignores the fact that the haves with the brains dramatically improve the lives of those without]. They barely mentioned that risk premium should favour a pool of shares not currencies [which are just government monopoly companies and they can go bust as well as any company can]. Etc...
Rock on!
Mqurice |
