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Of course, we always keep in mind that we are still waiting for the Big One - US Trade Deficit and the Dollar

US households must spend more than their incomes.
If they fail to do so, the economy will plunge into recession unless something else changes elsewhere.

The Fed can indeed be accused of being a serial bubble-blower.
But this is not because it has been managed by incompetents.
It is because it has been managed by competent people responding to exceptional circumstances.

Martin Wolf, August 22 2007

Who did the offsetting spending since the stock market bubble burst in 2000? The short-term answer was “the US government”. The longer-term one was “US households”.

The US government moved massively from financial surplus into deficit, the total swing being 7 per cent of GDP, between the first quarter of 2000 and the third quarter of 2003.

Household spending grew considerably faster than incomes from the early 1990s to 2006. By then they ran an aggregate financial deficit of close to 4 per cent of GDP. Nothing comparable had happened since the second world war, if ever. Indeed, on average, households have run small financial surpluses over the past six decades.

Nothing that has happened has been a product of Fed folly alone. Its monetary policy may have been loose too long. The regulators may also have been asleep. But neither point is the heart of the matter.

US households must spend more than their incomes.
If they fail to do so, the economy will plunge into recession unless something else changes elsewhere.

Full text

NakedCapitalism, August 22 2007:

Normally, I have the highest regard for Martin Wolf, the Financial Times' lead economics writer.
He is forthright, data-driven, articulate, sober, and insightful.

However, I take issue with his current article, "The Federal Reserve must prolong the party," and see its failings as symptomatic of the state of economics.
In brief, Wolf argues that the problems the Fed is facing are due as much (his tone suggests more) to the global savings glut than to Greenspan having served as a bubble enabler

I have a nagging feeling that economists and regulators do not fully understand our current environment. The situation described by the catchphrase "global imbalances" is outside any historical pattern. So are other elements of our present financial system

Individually, these elements may appear understandable (although I am not certain anyone has a good grip the full implications of the large role of derivatives).
But these factors are operating simultaneously, creating a Brave New World of finance that increasingly drives the real economy.

Full text

Comment by Rolf Englund:
Hear! Hear!
I usually get uncomfortable when I do not agree with Martin Wolf and The Economist.
But I think that the naked capitalist is on the right track.

I had a small Letter to the Editor in The Financial Times June 5 2007
My point was that "We might no longer be in the economics textbooks' market economy but in an economy much more influenced by the stock market, the currency market, the credit market and the real estate market, an economy that might be called a markets economy.

Full text here

In the Morgan Stanley analysis, people’s expectations of future price rises are affected by both recent experience and
the belief that there is some long-run average rate of house price inflation towards which the current rate will converge.
The analysis then gives two interesting results.
First, it does explain the doubling of real prices over the past decade.
Second, changes in expected prices explain a very large proportion of those increases.
Martin Wolf, FT 24/11 2006