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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: abuelita who wrote (40569)	10/1/2008 6:34:25 PM
From: TobagoJack	Respond to of 220141

just in in-tray we were all simply lucky that the pool of real funding was still expanding at the time , and a secular bull market era was underway - so it seemed to be a 'success' (in other words, the damage was masked). similarly, one could ask if the decision of the Hong Kong government to buy shares to support the market after the market had already declined by 60% was a 'success' - i contend that it similarly only seemed to be one, as the market would have most likely turned around of its own accord (the crisis was over, and although no-one knew it at the time, a vigorous economic upswing had already begun). you are forgetting the unseen costs of such bail-outs. the $120 billion - at the time a hefty sum - that the government had to grab from the tax payer's wallets could have been used for something else - namely productive economic ventures. since those never took place, we can not say how big an economic opportunity loss actually occurred, but we can estimate that it was substantial. (with regards to the merits of the RTC itself, i believe Ramsey Su may have a few things to say about that) the current situation is however different in a crucial aspect - the pool of real funding is in all likellihood stagnating or declining. while we can not measure its state, we do know one thing: as long as the pool is expanding, monetary pumping almost immediately leads to the resurrection of bubble-type economic activities, and thus also seems to 'work'. judging from historical experience, a sure sign that the pool of real funding is in trouble is when the stock market fails to react positively to rate cuts by the central bank (i.e., when after every rate cut, it falls below the level it inhabited on occasion of the cut after a brief bounce). in such a situation, the damage created by government bail-outs will not be masked by the rest of the economy overcoming it. on the contrary, since the govenrment must take resources from somewhere else in the economy to prop up the failed enterprises and assets, it will have the effect to weaken an already troubled pool of real funding further. the result will be a situation akin to the secular bear market period of Japan - a long term downward sprial, now and then interruped by small cyclical upswings based on the inventory cycle.