To: bobby beara who wrote (20885 ) 7/22/1999 10:15:00 PM From: pater tenebrarum Read Replies (1) | Respond to
Bobby, capitalism will not be free of friction if the stock markets of the western world suffer a truly cataclysmic crash. in the wake of such a setback, protectionism would likely rise, and countries around the world would start to question the tenets of liberal free market capitalism. the pendulum will then swing back towards statism and generally left-leaning interventionist type ideologies. this is something to be dreaded, as many of the hard-won reforms around the globe would be rolled back to some extent. and i fully agree that the Fed is fighting yesterday's battle; as it were, the Fed is caught between a rock and a hard place. i think they want to deflate the bubble, of which they surely are aware, despite protestations to the contrary. but how do you deflate an asset bubble slowly? it has never been done before; you can either prick it, or allow it to inflate even more and wait for it to pop on it's own. AG has alluded to the bubble in a recent speech and more or less made it clear that he fully expects that the Fed will have to deal with the fallout from it's demise. he seemed confident that an abrupt end to the mania can be dealt with in such a way that the 'real' economy doesn't suffer. i strongly disagree with this. the size of the global debt mountain, the size of the bubble and the degree of public participation all argue for a severe effect on the economy should the house of cards collapse. the Fed may well be able to stop the financial system from seizing up, but not more. perhaps i am wrong and the new era economists who call stocks a risk free asset and argue for Dow 36,000 as the proper level for the market are right. in that case everything is fine and i'm worrying over nothing.
