|
Doom New Era Home |
Good question, Ma'am (The Queen) En vanlig uppfattning inom ekonomisk forskning är att bubblor är svåra, eller omöjliga, att peka ut innan de brister. When the Bubble Bursts .
. .
Wall Street Journal, August 18, 1999 En vanlig uppfattning inom ekonomisk forskning är att bubblor är svåra, eller omöjliga, att peka ut innan de brister. "Det fanns en rad varningssignaler", säger Edward Chancellor som arbetar på den amerikanska kapitalförvaltaren GMO och har skrivit flera böcker om spekulation och marknader som gått över styr. För att känna igen en bubbla krävs lite mod, och förmågan att upptäcka följande egenskaper: When the Bubble Bursts .
. .
Wall Street Journal, August 18, 1999 Steep declines in the share price of many "new era" technology companies have renewed fears that today's prosperity could be threatened by a wider stock market crash. In this context, it is pertinent to ask why some stock market bubbles deflate with little ill effect on the wider economy while others are followed by prolonged economic crises. The orthodox view among economists is that bursted bubbles rarely harm the overall economy. Adherents of the efficient-market school, believing that stocks are always properly priced, tend to deny a connection between excessive speculation and subsequent economic crises. Milton Friedman has long argued that the Great Depression was caused not by the decline of asset values after October 1929 but by a contraction of the money supply during the early 1930s. This view was echoed in a paper last year by Massachusetts Institute of Technology professor economist Peter Temin, who claimed that the last time a stock market decline had an adverse effect on the real economy was in 1903. But history suggests that there are certain conditions that make an economic downturn more likely after a period of speculative euphoria. First and foremost is the amount of debt accumulated in the system during the preceding boom. In the 1920s there was a rapid expansion of both consumer credit (then called "installment loans") and corporate and property lending. Bad debts triggered the first banking crisis, in the autumn of 1930, after the collapse of the Bank of the United States, itself brought down by overexposure to a declining property market. Japan's current banking problems are the result of property loans extended during the 1980s against wildly inflated collateral. And the Asian crisis of 1997 was greatly exacerbated because Asian banks and businesses had borrowed excessively during the preceding boom. Past economic crises have also resulted from the misallocation of investment that commonly occurs during bubble periods. The British "railway mania" of 1845 and the American railway boom up to 1873 produced chronic overinvestment. Too many railroads were built that never turned a profit, while falling revenues caused defaults on railroad bonds. In the British case, the extension of the rail system was so rapid that it consumed much of the capital available for existing businesses, causing interest rates to rise sharply. More recently, the Japanese "bubble economy" was also driven by massive capital investment as companies attempted to lower manufacturing costs to cope with a rising yen. By the end of the 1980s this investment had produced excess capacity in many industries, from semiconductors to automobiles. Another factor is the degree to which assets are overvalued during a bubble. Japanese property prices in the late 1980s reached such extravagant levels that it has taken almost a decade for the overvaluation to work its way out of the system. By contrast, the fallout from the October 1987 stock market crash was mild because precrash share prices were not overvalued on a replacement-cost basis. The economy is more likely to survive a crash when business leaders are not sucked into the whirlpool of speculation. For instance, Amsterdam merchants never played the tulip game in the 1630s and therefore had nothing to lose when the craze came to an abrupt halt. Likewise, the collapse of the South Sea Bubble of 1720 had little effect on most English merchants, many of whom speculated on the way up but sold out before the bubble burst. The upshot was that, while the South Sea Company lost 90% of its value during the crash and many smaller start-ups disappeared, the number of commercial bankruptcies in 1721 was not much higher than usual. The actions of governments after a crash may also influence the severity of its effects. Many economists argue that after October 1929 President Hoover should have followed the advice of his Treasury secretary, Andrew Mellon, who advocated allowing the crash to "liquidate labor, liquidate stocks, liquidate the farmers and liquidate real estate." Instead, Hoover led a campaign to maintain wage levels in the face of falling prices. Japanese authorities committed the same error in the early 1990s with their futile attempts to prevent asset prices from falling. They would have done better to follow the example of the British authorities who remained benignly laissez-faire in the face of the South Sea Bubble and all 19th-century crashes. Then there is the largely imponderable effect of a crash on consumer behavior. During boom times, consumers increase their expenditure as the market price of their savings rises--what economists call the "wealth effect." Conversely, they react to a fall in the value of their investments by saving more and spending less. Anecdotal accounts suggest that the 1929 crash deeply unsettled consumers who were already up to their eyeballs in debt. As financial journalist Frederick Lewis Allen wrote in 1931: "Prosperity is more than an economic condition; it is a state of mind. The Big Bull Market of the 1920s had been more than the climax of a cycle in American mass thinking and mass emotion. There was hardly a man or woman in the country whose attitude toward life had not been affected by it and was not now affected by the sudden and brutal shattering of hope. . . . Americans were soon to find themselves living in an altered world that called for new adjustments, new ideas, new habits of thought and a new order of values." By contrast, the crash of 1987 did not greatly diminish consumer confidence because, according to some commentators, the public's participation in the preceding boom was too narrow. The bull market was driven by market professionals--corporate raiders and risk arbitrageurs--and was not a "retail market." The crash was seen as a "Wall Street affair," and Main Street was unperturbed. Of course, the question on everyone's mind is whether the U.S. economy will continue to prosper if stock prices come down from their current heights. In light of past experience, the prognosis is not good. Corporate debt has risen sharply. It is also likely that much of the capital investment during the current boom, particularly in the Internet, will prove to be as misplaced as British investments in railroads in the 1840s. Leading businessmen, their personal wealth inflated by the value of stock options, have not remained aloof from the current boom. On most valuation measures, stocks are very highly priced and could have a long way to fall. Furthermore, because there is no clear consensus among policy makers about how to deal with the aftermath of a bubble, the authorities may yet be persuaded to intervene to prop up wages or share prices. Such actions could inadvertently lengthen the crisis by hindering the market from reaching its clearing level. What would happen to consumer confidence in the case of a bust? Consumer credit is currently far more extended than in the 1920s, savings are at an all-time low, and there is a much greater public exposure to the stock market than 70 years ago, when only a couple of million Americans owned stocks. Many investors have taken out home-equity and margin loans to finance their stock market speculations. One day these debts must be repaid. If day traders lose their shirts, they will most likely spend less and save more. A sharp rise in the savings rate poses the threat of what John Maynard Keynes called the "liquidity trap." Since the economy is currently running at near full capacity, any fall in consumption will produce excess capacity unless compensated for by rising exports or increased government expenditure. As Daniel Defoe observed after the first British stock market crash of 1696: "Anyone might have foreseen that . . . the raising of stock, of all sorts to a value above the Intrinsick, must have some fatal issue, and would fall somewhere at last so heavy as to be felt by the whole body of Trade." Good question, Ma'am (The Queen) |