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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (35035)6/15/2003 4:37:13 PM
From: prosperous  Read Replies (3) of 74559
 
>>A: There are pockets of bubble. But it's not like the stock-market bubble. It's not even close.<<

That may be the key to the "bubble swizzling soft landing algorithm" where the successive bubble is in a different area and the magnitude of successive bubbles is kept lower than the previous one by carefully controlling the stimulus. If that could be done, the dynamics of the system would tell us that it will damp out the oscillations and come to a normal operating range. It may have a large time constant but it seems that Greenspan has done a good job with it so far with the first two. It will be interesting to see how and when he deflates the bond and real estate optimism, my suspicion is if that is done in a controlled manner and if he can get the money rotated out into small cap and value slowly it may not be too bad. The problem with a system that begins with large amplitude oscillations is that it is very vulnerable to external shock that is unknown and could kill a solution that might work otherwise. Such input (or noise) could start increasing the amplitude of successive oscillations and put it in unstable region.
While I wish that Greenspan is very successful in achieving this for the sake of the economy I am not sure I am brave enough to bet on it. Now on the ethical/moral part of whether such controlled experiment should be successful or not, its a separate issue altogether for some other time.

Best regards
Hemant
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