Article: Have we moved to a fundamentally different economic setup?

[A_C_E]

I came across this article when I was reading an issue of Harper's a couple weeks ago, and find it very interesting. One of the things it suggests is that we've moved from a "boom and recession" business cycle to what might be termed a "bubble cycle"....one creation of fake wealth in a given major industry after another, and when one pops, another is formed.

A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitiztion, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours.


That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle..........(continues)

"The next bubble: Priming the markets for tomorrow's big crash" by Eric Janszen (Harper's Magazine)

It's a good read, and those around here with an interest in finance and economics, like me, will find it very interesting. I also find the implication that Greenspan intentionally replaced one bubble with another after the dot-com bust very intriguing. I could see it being the case. Thoughts?

[WickedLou9]

It's an interesting idea. I was actually thinking about this as I looked at the long term graph of the S&P 500 this morning. Has our economy reached maturity? The S&P 500 looks like an upward sloped graph. Sure there are ups and downs but the overall trend was slowly and steadily upwards.. untill the dot com bubble. It spikes and then falls. And then the housing bubble. Spike and fall. Is that what out economy will be like? Is that what a mature economy does? It slowly grows until maturity when it sort of, bounces off the rev limiter over and over again?

[A_C_E]

Originally Posted by WickedLou9

It's an interesting idea. I was actually thinking about this as I looked at the long term graph of the S&P 500 this morning. Has our economy reached maturity? The S&P 500 looks like an upward sloped graph. Sure there are ups and downs but the overall trend was slowly and steadily upwards.. untill the dot com bubble. It spikes and then falls. And then the housing bubble. Spike and fall. Is that what out economy will be like? Is that what a mature economy does? It slowly grows until maturity when it sort of, bounces off the rev limiter over and over again?

I was thinking the same thing as I was reading the article. Our economy had always been driven by industrial production, until the computer revolution in the 90's and everything went wireless and technology-related. I wonder if we just can't continue to grow in the same way we always did just because there isn't really anywhere left to go? Or maybe this is all just an artificial creation, a manipulation of the economy by those at the top to maximize profits in a short period of time, then cut and run?

I don't know, I don't really have any answers. But it's something interesting to think about.

[A_C_E]

"Worse, if not enough U.S. financial assets were purchased, the United States would be less able to finance its imports. It’s the old rule about bank debt, applied to international deficit finance: if you owe the banks $3 billion, the bank owns you. But if you owe the banks $10 trillion, you own the banks."

Werd.