Posted on 09/07/2009 3:34:24 AM PDT by Scanian
In the last decade, we have witnessed the bursting of two bubbles, the stock market bubble driven by internet stocks with unsustainable business models and valuations, and more recently, the private debt bubble that has resulted in the destruction of credit along with real estate values. America is now engaged in the unprecedented growth in government accompanied with unprecedented debt at the federal level. The Federal Reserve in cooperation with both the Bush Administration in its final days and now the Obama administration is propping up the credit markets with over $1.0T including the TARP funds, and open market purchases of the US debt obligations. Can the too big to fail hypothesis for the big banks also be applied to the Federal government?
The table below shows the history of the Japanese Tokyo stock market before and after its bubble burst in 1990. (snip)
Bubbles are only possible if the increase in value (stock, home prices) is believed to be secular. This happens in stages. Initial price increases climb a wall of worry, that the prices may have overshot the real market price. If this continues for a while, then we get to a second phase where euphoria creeps into the market psyche causing more and more people to jump into the market thereby causing prices to go higher. At this stage, people rationalize that ‘this time it is different' from the market norms. Eventually, most everyone who wants into the market is in, and there is no demand.
Market pricing is set at the margin, and so with no demand, prices must drop, and precipitously. Prices do not find a bottom until the assets are placed into strong hands that will take the demand out of the market. People who are burned in the collapse of asset pricing will be highly averse to re-entering those markets.
In looking at the NASDAQ market, we see that after nearly a decade since the bubble burst, prices have not recovered. The Japanese TOPIX market bubble burst in 1990, and prices still have not recovered nearly twenty years after the bubble had burst. The TOPIX is at the same price as in 1985. Neither the NASDAQ nor the TOPIX markets had overcome fundamental rational economic principles, and both markets purged the excesses.
Sorry if these are foolish questions but:
**Once these libs are voted out of office, can we eliminate some of these foolish policies?
** Can the offices of these czars and their staff be eliminated?
I can only hope this bubble bursts all the way down to the local government level. Local government is the real untold story of taxpayer’s slow strangulation.
They’d have to REALLY be out...lose the House and have less than 40 votes in the Senate.
The socialist scum would be sure to filibuster any changes the people wanted to make to their schemes.
The elitists know what’s best for us, after all. s/o
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