[Marxism] This is no recovery, this is a bubble – and it will burst | Ha-Joon Chang | Comment is free | The Guardian

Louis Proyect 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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