[Marxism] This is no recovery, this is a bubble – and it will burst | Ha-Joon Chang | Comment is free | The Guardian
lnp3 at panix.com
Tue Feb 25 03:54:46 MST 2014
This time around, no one is offering a new narrative justifying the new
bubbles because, well, there isn't any plausible story. Those stories
that are generated to encourage the share price to climb to the next
level have been decidedly unambitious in scale and ephemeral in nature:
higher-than-expected growth rates or number of new jobs created;
brighter-than-expected outlook in Japan, China, or wherever; the arrival
of the "super-dove" Janet Yellen as the new chair of the Fed; or,
indeed, anything else that may suggest the world is not going to end
Few stock market investors really believe in these stories. Most
investors know that current levels of share prices are unsustainable; it
is said that George Soros has already started betting against the US
stock market. They are aware that share prices are high mainly because
of the huge amount of money sloshing around thanks to quantitative
easing (QE), not because of the strength of the underlying real economy.
This is why they react so nervously to any slight sign that QE may be
wound down on a significant scale.
However, stock market investors pretend to believe – or even have to
pretend to believe – in those feeble and ephemeral stories because they
need those stories to justify (to themselves and their clients) staying
in the stock market, given the low returns everywhere else.
The result, unfortunately, is that stock market bubbles of historic
proportion are developing in the US and the UK, the two most important
stock markets in the world, threatening to create yet another financial
crash. One obvious way of dealing with these bubbles is to take the
excessive liquidity that is inflating them out of the system through a
combination of tighter monetary policy and better financial regulation
against stock market speculation (such as a ban on shorting or
restrictions on high-frequency trading). Of course, the danger here is
that these policies may prick the bubble and create a mess.
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