<blockquote>‘Entrepreneurs are accustomed to a manic-depressive economy.’
- Jesús Huerta de Soto (Context:
‘The dimension of feeling..’ – ‘The Myth of Efficiency’)</blockquote>
'There’s complacency along with a lack of appreciation for the long-term structural impact associated with late-nineties excesses. I continue to read of the “mild recession” after the bursting of the “tech” Bubble. In reality, collapse ensured depression throughout a segment of the economy. And let’s not forget the 2002 corporate debt crisis.'<blockquote>'Markets these days have attained that late-nineties feel. Manic 1999 had those crazy Internet stocks. Manic 2017 has the even crazier cryptocurrencies – with biotech (up 39% y-t-d) and semiconductor (up 35%) stocks straining to keep up with the insanity. In the face of conspicuous speculative excess, the Fed in 1999 held firm with its baby-step “tightening” approach that worked only to promote a further loosening of financial conditions. The 1998 crisis was fresh in central bankers’ minds, while markets delighted in the fear central bankers harbored over Y2K. As for central banks here in 2017, apparently the 2008 crisis will remain forever top of mind. Markets have never been as reassured that central bankers are loving the party.
By 1999, a policy-induced prolonged technology boom had fostered a veritable Arms Race, especially in anything Internet and PC. Finance was flooding into the sector, ensuring massive mal- and over-investment. The upshot was the rapid propagation of negative cash-flow enterprises that would turn unviable the minute the Bubble burst. The New Age hype had one thing right: Exciting new technologies changed the world. This did not, however, prevent painful busts and a pair of powerful financial crises.
There’s complacency along with a lack of appreciation for the long-term structural impact associated with late-nineties excesses. I continue to read of the “mild recession” after the bursting of the “tech” Bubble. In reality, collapse ensured depression throughout a segment of the economy. And let’s not forget the 2002 corporate debt crisis.
The Fed held powerful reflationary tools at its discretion. Rates were slashed from 6.5% in December 2000 all the way to 1.00% by June 2003. There was also a strong inflationary bias throughout mortgage finance and housing. This provided the Federal Reserve a robust avenue in which to promote record Credit growth and an attendant Bubble of sufficient scope to more than emerge from the technology bust. No nineties boom and bust then no mortgage finance Bubble reflation and resulting 2008 collapse – and no ongoing global government finance Bubble. Open the central bank crisis-fighting tool kit today and there’s a single slot for QE. Markets are elated with the virtually barren apparatus.
The current “tech” Bubble absolutely dwarfs the late-nineties period. Arms Races now proliferate across various industries, technologies and products on a global basis. Recalling 1999, media these days are filled with ads from scores of upstarts promoting new products and services. How many will ever generate positive cash-flow and earnings? The big global tech firms – flush with extraordinary boom-time profits – spend lavishly in an Arms Race for primacy over the cloud, artificial intelligence and myriad new services..
..
October 12 – ANSA: “European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It's not clear what that means’.”
October 11 – Financial Times (Chris Giles): “Central bankers usurped the titans of Wall Street as the masters of the universe almost a decade ago. They rescued the global economy from the financial crisis, flooding the world with cheap money. They used their powers effectively to get banks lending again. Their actions raised asset prices, keeping business and consumer confidence up. Financial markets and populations hang on their words. But never have they been so vulnerable. As they gather in Washington for the annual meetings of the International Monetary Fund, there is a crisis of confidence in central banking. Their economic models are failing and there are doubts whether they understand the effects of interest rates and other monetary policies on the economy. In short, the new masters of the universe might not understand what makes a modern economy tick and their well-intentioned actions could prove harmful. While there have long been critics of the power of central bankers on the left and the right, such profound doubts have never been so present within their narrow world.” '
- Doug Noland,
Arms Race, October 14, 2017</blockquote>
'..The world is stuck in a vicious cycle of asset bubbles, low consumer inflation, stagnant productivity and low wage growth..'<blockquote>' "Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising inequality and made mass consumer inflation less likely.
Since the 2008 financial crisis, asset inflation has fully recovered, and then some. The US household net worth is 34 per cent above the peak in 2007, versus 30 per cent for nominal GDP. China’s property value may have surpassed the total in the rest of the world combined. The world is stuck in a vicious cycle of asset bubbles, low consumer inflation, stagnant productivity and low wage growth." - Xie
Xie is right, asset inflation/bubbles have [not] been the focus of central banks. Why? Because central banks don't care about underfunded pensions, millions retiring in poverty, all they care about are big banks and making sure their big private equity and hedge fund clients are in good shape to continue paying them big fees.
..
Is it time to party like it's 1999? Are we on the cusp of a major parabolic market breakout that will last a couple of more years?'
- Leo Kolivakis,
The Bubble Economy Set to Burst?, October 13, 2017</blockquote>
Context<blockquote>
America's Great Depression - Rothbard'..the U.S. equity market .. exceeding even the levels observed in 1929 and 2000..'(Haptopraxeology) - '..We have lost three centuries as a result of ignoring our scholars!'</blockquote>