A Crash Course for Central Bankers
A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily. Consider three famous episodes: the U.S. stock market crash of 1929, Japan’s crash of 1990-1991, and the U.S. crash of 1987.
What if Wall Street crashes because Main Street's Housing Market crashes? What if Ben "No Bubble" Bernanke can't see it coming? Then what?
There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.
Here's a look at Wall Street. Citigroup rallied 18.6% today. That brings the stock price back to a whopping $4.21. That's a bit shy of its $50+ price back in September of 2000.
Here's a look at Main Street. It's a bull market. There's higher highs and higher lows.
Here's a bumper sticker idea.
The Smarter Fed: "Protecting" the Broken Economy and the Shattered Financial Sector since 2000
Memo to Central Bankers: We have too much debt.
ReplyDeleteIncome inequality compounds the issue. So does global wage arbitrage.
Imo, we really need to link executive pay and wall street bonuses to long term growth. Maybe some kind of seven year moving average on profit growth, provided employee health & retirement benefits are fully funded.
The present system has too many incentives that reward short-termism stupidity and fraud.
I don't accept the argument that the present system provides the most output. But even if I did, I wouldn't advocate the current system as it has serious shortcomings in terms of distributing output. What good is mega output if only 1% accrue use of the output?
Also, the quality of life for so many is poor imo. Having the majority live under the burden of crushing debt is unacceptable to me. There has to be a more equitable way.
And to be clear, it's not about me. I have have plenty.
mab,
ReplyDeleteGood points on the debt.
February 19, 2008
The Forthcoming “Jingle Mail” Tsunami: 10 to 15 Million Households Likely to Walk Away from their Homes/Mortgages Leading to a Systemic Banking Crisis
http://www.rgemonitor.com/roubini-monitor/244768/the_forthcoming_jingle_mail_tsunami_10_to_15_million_households_likely_to_walk_away_from_their_homesmortgages_leading_to_a_systemic_banking_crisis
Too bad that this author ended up being too optimistic, not too pessimistic, about the severity of this housing recession.
Been there. Done that. Still there. Still doing that. I'm clearly just a perma-optimist. All surprises have been to the downside, much to the surprise of the yaysayers.