Raising rates to a positive real value, allowing recession,
cutting money supply growth, and raising taxes will do it -
drop commodities and cut current account deficit, while
strengthening the dollar. The price is unemployment and
derivatives melt. The problem is: with the current
"solution" derivatives will keep expanding, and the bomb will
keep growing in size!!! You think WHAT is pushing SP higher?
And WHY? No, it's not Hank... nor is it Ben. That's a
bear/gold bugs myth. These things are structured similar
to CDOs, with volatility being RISK PREMIUM. Liquidity
increases, then volatility declines. Stocks go up. Why?
They are pushed by derivative markets, which are larger
than everything else. Ben probably has
little to NO IDEA how these things work. Offloading risk
on the system. Systemic risk is increasing exponentially
with the size of derivatives market. Unfortunately,
it is NOT possible to tell when the whole mess will
blow up. Until then quants will make a very good buck,
because diffusion equation (Black Scholes model modified
by volatility smile or smirk) really works. These folks
have supercomputers and instantaneous orders. The only
thing that breaks down that money making machine is
lack of liquidity (such as in subprime, or such as the
one that hit in January). Ben ensured there is no lack
of liquidity, so volatility immediately declined. |
