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I have several observations contrary to your post about the possibility
and the effect of a new paradigm for the economy.
I actually agree that recent Fed behavior has been beneficial, although
'perfect' seems a bit strong. On the other hand, I worry that the Fed is
like a policeman, good at dealing with 'petty crime', but inadequately
equipped for more extreme measures, eg war.
I disagree with your conclusion on the onset of the crash. In my
reading, it was a jump from equities to bonds in a global environment of
deflation that hit the world stock markets.
New technologies are not new: the telegraph, the telephone, the
railroad, the slide rule, the calculator, radio, television, the cathode
ray tube, the PC are all examples from the past. Crashes continued to
happen. Japan invested JIT inventory practices -- they crashed. Boeing
is one of the most technologically advanced companies -- they are
struggling to make the planes. GM is on strike, and may run out of cars.
IMHO, the continuation of the bull market in the US is due to the
problems in Asia. which have hindered the Fed's desire to raise interest
rates for domestic reasons. e run the risk of Asia getting their act
together quickly, leading to a 1929-like substitution effect out of US
assets (bands and stocks) and into Asian securities, driving interest
rates up and stocks down.
But what do I know...
DanG
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.
>
> 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.
>
> ...
>
> 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...
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