However, despite the doon and gloom rhetoric of the biz press (understandable though, considering the money lost), I'm not convinced that this is an exceptionally bad thing. I was looking at a graph today of the Nasdaq, compared to the Dow and S&P 500, and, well, you tell me if this looks like a bubble...

(edited to change the link into a picture, and to add the following: )

Update - the Nasdaq closed down almost 3% for the day, and at a 6-year low. However, while this may be bad for the portfolios of those who bought near the peak, I think it's not so bad overall, in terms of the health of the system.

[ September 23, 2002: Message edited by: MJ ]

Anyway, Rasmus Raven wrote an op-ed for the NY Times:

quote:

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The equity bubble helped to create other bubbles — most notably in the housing market and in consumer spending. Their continued existence poses a serious threat to lasting expansion — and yet, puncturing them raises the grave risk of deflation. This suggests the economy will prove as challenging to America's political leadership as any other issue in the year ahead.

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which, oddly enough, is contradicted by something that appeared in the business section:

quote:

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Contrast that with the meager annual productivity growth of just 1.4 percent from the early 1970's to the early 1990's. Under relentless pressure from highly competitive markets and with the help of continued advances in technology, American business can be expected, most experts now agree, to continue to achieve average productivity gains of at least 2 percent a year.

Those gains have translated into real benefits for nearly all Americans. The official unemployment rate fell below 4 percent in the late 1990's for the first time since the 1960's, reaching the state of economic nirvana that experts call full employment, in which essentially any working-age person who wants a job can find one. The unemployment rate has since risen, but it remains considerably lower than at comparable stages in past economic cycles.

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Anyway, something else of interest appears in the Atlantic. Stiglitz says we should rewrite the history of the 90's but, from what I gather, his beef with the World Bank isn't what I thought (which means I should probably read the book):

quote:

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The Fed had not fully appreciated the consequences of rapid changes in the labor market: higher levels of education, weaker unions, a more competitive marketplace, increased productivity, and a slower influx of new workers meant that the economy was able to operate at much lower rates of unemployment without triggering inflation. As evidence mounted that lower unemployment need not mean inflation, Alan Greenspan, to his credit, grasped the new reality. While the inflation hawks at the Fed continued to fret (they said inflation had to be shot before one saw the whites of its eyes), Greenspan raised interest rates more slowly than they wanted. If the hawks had had their way, the period of growth would very probably have been cut short.

Thus the way was paved for the largest peacetime expansion in U.S. economic history by a combination of pragmatism, luck, and fortunate mistakes. But other mistakes turned out to be less salubrious.

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2 percent per year productivity growth is hardly anything to scream about when one considers that the 1950s and 1960s turned in productivity growth rates of around 3 percent per year.

On bubbles, one bubble that should be noted is the consumer debt bubble. If unemployment creeps up much higher people will start defaulting on their debts, and with the new bankruptcy regulations it isn't hard to see how people might just be tempted to walk away rather than deal with the whole thing through bankruptcy court. Dominoes seem to come to mind, as does a house of cards.

Rasmus, re the inflationary spasm that I consider likely to happen - I note that iTulip.com posits a deflation followed by a rebound.

Eric Reguly talks about Roach's piece but adds what he considers a greater concern: oil prices.

quote:

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In the end, it's mostly about oil. True, the downturn of the housing market and consumer spending are real threats, but if you want a sure-fire way to accelerate an economic downturn, it's high oil prices. Consider that the most serious recessions in recent decades were all preceded by a Middle East crisis and a dramatic rise in oil prices. It happened in 1973, during the OPEC oil embargo; again in 1979, at the start of the Iranian revolution; and one more time in 1991, during the first Persian Gulf war. Iraq supplies a mere 2 per cent of the world's oil, and the geopolitical optimists believe that Saudi Arabia and other OPEC countries could instantly make up that shortfall should an invasion cut off Iraqi supply.

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War in gulf could savage economy

Anyway, for myself, I hope the real estate bubble bursts. I've been eyeing places in TO to buy. I used to joke about waiting to buy a place after the bubble bursts, but now I wonder if it's no longer a joke (although, from what I understand, the late 80's TO real estate bubble was quite different in dynamics than what it is now).

[ September 25, 2002: Message edited by: rasmus_raven ]

[ September 25, 2002: Message edited by: SHH ]

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