Re: a question you raised before: if a 40% drop in market cap in 1987
did not do too much harm, why now is different?
Many reasons. Globally, in 87 Japan, Asia and Europe were in good
shape and getting better. In US, I compiled the following numbers:
in current $B
1987 (% of GDP) 1998 (% of GDP)
GDP 4,800 100 8,600 100
Treasury debt 2,350 49 5,550 65
total debt 8,500 177 15,500 180
liquidity (L) 4,350 91 6,800 80
stock cap 3,500 73 12,000 140
A 40% drop in stock market cap was a 29% of GDP in 87, now it would
be 56% of GDP, nearly twice larger blow. Also, feds could inflate
easier in 1987, as Treasury debt was smaller fraction of GDP, and
liqudity base was larger.
JMHO |
