Evening all,
Quiet nite on this thread; I'd like to take the opportunity to post portions of a WSJ op-ed piece from last week by James Grant;
For Private use only;
The Coming Bust
What we don't know about the future is almost everything. Yet a certain number of highly visible economic forecasters nowadays seem to doubt almost nothing. They are bullish on the US economy- which off and on for 200 years has been the safest to forecast. What's remarkable is that they are unqualifiedly bullish. They have brushed aside the Asian depression, the emerging-markets liquidation, the global currency crisis, the globalcredit crisis and (over the past several weeks) the confidence sapping decline in the DJI average.
Of the 50 economists who participate in the Blue Chip forecasting survey, not one has predicted a recession to begin in the second half of 98. Only 9 % expect a recession in the second half of 99. There is cold comfort in such massed optimism. Rarely is a hardened consensus right at an economic or financial turning point.
What gives the superbulls their confidence is the observation that postwar recessions have been preceded by a tightening of monetary policy. Ordinarily what provokes the rise in the cost of borrowing is inflation. Today, however, there is no price inflation, and hence, the theory goes, no reason for the Fed to raise the federal funds rate. Ergo, the republic is safe.
But the republic is not safe. I do not pretend to know whether a downturn is looming (like a burglar, recessions arrive unannounced; economists read about them in the newspapers, along with everybody elce). What I do believe is that the odds of economic and financial trouble are high and rising, and that the Fed-centered theories of so many Wall Street analysts are outmoded. Busts are not caused by the Fed alone. Fundamentally, what causes busts is booms.
omitting 10 paragraph body
When stocks were going up every day, Wall Street's economists were quick to credit globalization. Now that much of the world's economy has plunged into the economic and financial abyss, Wall Street contends that America didn't need the rest of the world anyway. And, besides, the Fed won't tighten monetary policy.
As a matter of fact, the Fed has already tightened by doing nothing in the face of a broad-based decline in market interest rates. Crowded in by troubles, Mr Greenspan may presently ease, and this may temporarily reignite the speculative boom. But let the record show that Japanese money market interest rates were 7.5% in 1991, as the Japanese economy began to slip under the waves. Now they are .5% and Japan is still slipping. Is the US following Asia into a slump? We may hope that it isn't, and we amy predict that it won't. But it's the height of folly to say that it can't.
copywirte WSJ August 28,1998
Mr Grant correctly anticipated market reaction to a hint of interest easing!
best,art |
