We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
While 2008 will probably be best known as the year that global stock markets had their values cut in half, it was really much, much more. It was a year in which every major asset class - stocks, real estate, commodities, even high-yield bonds - suffered significant double-digit percentage losses, resulting in the destruction of over $30 trillion of paper wealth. To blame this on subprime mortgages alone would be to dismiss an era of leveraging that encompassed derivative structures of all types, embodying a belief that economic growth was always and everywhere a certainty and that asset prices never go down.
The outcome essentially depends on the ability of the Obama administration to rejuvenate capitalism's "animal spirits" by substituting the benevolent fist of government for the now invisible hand of Adam Smith. Federal spending and guarantees in the trillions of dollars will be required to fill the gap created by the deleveraging of private balance sheets. In turn, lenders and investors alike must begin to assume risk as opposed to stuffing money in modern-day investment mattresses. The process will take time. Twelve months of the Obama Nation will not be sufficient to heal the damage ...
Hmm. I thought the "hand" was meant to be invisible. I think it's working now, slowly grinding away and doing what it needs to do to adjust and correct for excesses. I tend to be skeptical every time I hear people say "This time it's different..." We're in a corrective recession, and we'll emerge eventually. And America will emerge first, because we have the most dynamic and creative economy in the world.
The fantasy that somehow the government can spend the US out of a global recession is, I think absurd. But they have to appear to be doing something.
To put it all in context, I borrowed this 20 yr. chart from My Trader's Journal, up through Oct 3. Today the S&P closed around 870, so we have been below the trend line for a while. Whatever that means. To my eyes, this chart shows a double bubble, and when the next one happens, I'm getting off at the top.
The outcome essentially depends on the ability of the Obama administration to rejuvenate capitalism's "animal spirits" by substituting the benevolent fist of government for the now invisible hand of Adam Smith.
Exceptional foolhardiness: the fundamental principles of liberty do not produce the the same systems as do those of the bureaucracy.
When Congress subsidized 'equality of need' in housing and credit, the The Street could leverage its pockets full without risk. Why not? It's found money.
"...when the next one happens, I'm getting off at the top."
Good luck ... we probably won't see another real top in equities anytime soon. Currency arbitrage is now going bananas because the smart money is expecting Obama to turn on the printing presses -- and he will have no choice once the consumer credit markets goes South, which is next.
Robert said, "...the smart money is expecting Obama to turn on the printing presses". I agree that "the smart money" is thinking exactly that way.
However, I would like to point out that "the smart money" are the folks who got us into this mess in the first place. Economic fundamentals allow inflation only to the point where there are no savings left to convert. Then we get monetary collapse leading to dictatorship. e.g. Germany 1923.
If market economists from Von Mises to Friedman are correct, the failure to grasp the need to increase value and not currency in these circumstances was the essential reason why Roosevelt's administration left us mirred in a depression for nigh on to 10 years with the devastating consequences we are experiencing to this day (e.g. TVA is a bleeeding wound on the books and is still not payed off).
Because I admire the people who make and read "Maggie's Farm", I would like to suggest that a successful recovery is going to require 5-15 years of gently depressing monetary value on a global basis. i.e. Expect banks, financial houses and governments to persistently increase the value of exchange credits (i.e. currency), not inflate them.
And, yes, this is going to cause great pain to everyone who does not value hard work and determined thrift. Sorry, the party's over.