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> I have the following to say about the crash:
>
> - there will always be fluctuations in economic activity; the
> economic cycle
> is not dead,
>
How can you be so sure? What is your economic evidence? It surprises me
that so many people on this list making posts under the CRASH heading are so
sure that things are no different today than in the past. I'd like to give
you all just two pieces of concrete evidence (among dozens) that WE ARE
living under a new paradigm, and the result COULD be that economic cycles
(recessions) are dead. Again, I'm not saying these things are absolutely
true, I'm just trying to get the persistent pessimists on this list to think
"outside the box" and open their minds to the possibilities of a "new
economic order."
The first piece of evidence is the evolution of Fed policy to the point of
"almost" perfection. I explained in an older post that the primary cause of
the stock market crash in 1929 was that the market was built on leveraged
money. Investors in those days (if you can call them that) only had to put
up 10% of the face value of stock to buy it. This led to grossly inflated
stock prices, which in turn led to panic selling. That situation simply
doesn't exist today. More importantly, however, is the fact that the Great
Depression following the crash actually had very little to with the stock
market, and everything to do with a misguided Fed policy.
To make a long story as short as possible, the Federal Reserve (as they had
in previous economic downturns) felt people weren't saving and investing
enough, so they therefore contracted the money supply. We now know with the
benefit of hindsight that this only added kerosene to the fire. The real
problem was that people weren't SPENDING enough, and the money supply should
have been expanded. The contraction in the money supply also caused the
banking system to collapse because banks didn't have enough money on hand to
pay the panicked customers who wanted to withdraw their money.
It's taken about 60 years to get it right, but the Fed has just about
perfected their job. Is it just a coincidence that virtually every
recession the US has had since 1929 was shorter than the last one? I don't
think so. Everybody was sure the 87 "crash" was going to cause a recession,
but guess what was the first thing the Fed did after that event? They
dramatically increased the money supply, and the economy just kept going.
It took a failed real estate tax policy and a huge tax increase to cause our
last recession in the early 90's, and that one was so brief that we didn't
even know we had it until it was over!
The second reason is because of a change in the private sector. Any
economist worth his or her salt will tell you one of the primary factors
involved in the length and the severity of a recession is the amount of
excess in the nation's inventory system. Companies used to go from boom to
bust because judging the true demand for their goods or services
consistently during the year was almost pure guesswork, and they had to make
those decisions months in advance. Since they usually erred to the upside,
when a slowdown in the economy came, inventories became so large that
companies didn't just slow down the production growth, the production
actually contracted. This caused a recession.
Thanks to information technology, companies can now carry very little or no
inventory, and have become very good at judging future demand. A good
example of this is the airline industry. I have a friend who flies from LA
to Las Vegas almost on a weekly basis. He used to almost count on getting
bumped (and getting a free ticket out of the airline) at certain times of
the year because the flight was overbooked.
Today, even though the average flight is much more full than even just a
couple of years ago, he almost never gets bumped (and no free tickets). The
reason is every major airline now uses sophisticated software called yield
management that lets them predict with almost frightening accuracy the
demand for seats on any given flight at any given time of the year, and what
price they can charge for each and every seat at each and every moment
without overbooking. On a flight of 300 people, it's not uncommon for there
to have been 250 different prices charged for seats!
These two examples are just the tip of the iceberg. I can't guarantee you
that there won't be another recession, but something is definitely different
out there folks...
Bruce
> - someone is always talking about a crash; someone is therefore
> bound to be
> right at some point,
>
> - commentators/ economists have successfully forecast five of the
> last three
> recessions,
>
> - see the "Albert Einstein" joke on RT a week or so ago- quite perceptive!
>
> Regards
>
>
> Bob Jones
>
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