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Asset bubbles? Do ya think?
Saturday, November 14, 2009
President Obama is in Asia, talking with various trading partners about the future of the global economy, the topic of America's biggest exports - U.S. dollars and asset bubbles - likely to come up during these discussions unless, somehow, they've all missed comments coming from last week's APEC gathering as reported in the Wall Street Journal.
Bubble Fears Surface at APEC GatheringYes, we do seem to be turning more and more Japanese, at least in regard to the policy of "extend and pretend" when it comes to assets held on banks' balance sheets.
The U.S. has limited ability to stop the dollar's recent decline, World Bank President Robert Zoellick said Friday, as he and several Asian leaders expressed concern that global stimulus measures could be inflating asset bubbles."Given the role of the dollar, frankly, there's not a tremendous amount one can do other than try to run a good, sound policy and restore the U.S. economy to growth," Mr. Zoellick told a panel discussion on the sidelines of the Asia-Pacific Economic Cooperation forum annual summit.
...
Several expressed concern that the global stimulus, especially the flood of liquidity pumped out by central banks, could create asset bubbles. "What central banks did in the face of the crisis is just open the tap of liquidity," the World Bank's Mr. Zoellick said. The increased liquidity could lead to inflation, such as in commodities. Asset bubbles "could undermine confidence in 2010," he said.
Hong Kong Chief Executive Donald Tsang said he was he was "scared" that the U.S. may be following the example of Japan -- tackling its recession with overly loose policies that could, in turn, inflate asset bubbles
It seems to have become conventional wisdom that, if we can only get asset prices back to their 2007 levels, all our problems will go away.
5 comments:
Tim,
You may be interested in these...
http://www.politico.com/news/stories/1109/29330.html
Above politico story mentions this:
http://www.pekingduck.org/2009/03/chinas-luxury-mall-calamity/
Sam in MD
I thought Obama was voted in to bring the troops home, not expand the colonial occupation. This is your tax dollars and pre-inflation savings at work, people.
«if we can only get asset prices back to their 2007 levels, all our problems will go away.»
That is what Greenspan and others have been saying for a while, and it is true if "our problems" means "the problems of asset owners".
There is no easier, no more profitable method of redistributing purchasing power from those who don't own assets or own little assets to those who own lots of assets than rising asset prices.
If house prices or stock prices double, the owner of a $100k asset makes $100k in income in capital gains, just like that, and the owner of $1m asset makes $1m, which is even better.
Asset price bubbles are the greatest income distribution policy ever invented, and guess what, most USA voters are older, meaner, stupider petty asset owners, and they demand strong asset price rises, as they think that this will make money fast at the expense of losers without assets, and yet they do not realize that most of the gain go to those with far more assets than they have.
But those older, meaner, petty asset owners are becoming aware that unless they MAKE MONEY FAST with ever increasing capital gains they have too little to retire on, creating high political pressure.
Please everybody reread that classic comment by [bullbust]. Everything
is going according to his plan :-).
http://economistsview.typepad.com/economistsview/2008/02/why-bubbles-occ.html#c105213332
«The state of received wisdom (as elucidated by various actors) 2004-2007.
[ ... ]Middle-class pre-bubble owners:
Stratospheric housing prices are great, because we get free money. It is a great thing that given todays prices, we cannot buy the house we
live in, with our current income. (just read the comments on this very blog by the boomer middle-class on housing topics). Roubini et. al. are chicken littles»
«State of received wisdom today, by the same actors
[ ... ] Middle-class pre-bubble owners:
Inflate, inflate, inflate. We are so stupid that we think its good for us.»
Alan G and the other bankers don't care overly much what happens to asset owners. What they mostly care about is that banks loaned money to buy the assets, and banks won't be repaid if asset prices fall. Its all about the banks.
BTW, WSJ had an article noting that Wall Street firms would be paying out $140 billion in bonuses this year as opposed to $130 billion a year before the meltdown. For central bankers, its all about the financial institutions. What's good for the banks is good for the country, so the banks must be preserved at all costs.
The consumer pays the cost with their purchasing power. Most consumers never figure this out.
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