nettime's_spam_kr!k!t on Sun, 5 Apr 2009 22:44:48 +0200 (CEST)

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<nettime> nettime-l, Will This Bubble Burst?

         [orig From: __-Shalom <>

As we have learned the hard way what goes on on Wall Street can influence
all of us directly. You may have taken some comfort from the most powerful
rally since the begining of the ninteenth century that started on March 9,
2009 (The 233th anniversary of the publication of Adam Smith Book: An
Inquiry into the Nature and Causes of the Wealth of the Nations. History
sometimes have its own irony.) If you still have some cash you may wonder
whether to join the party or even regret you didn't do so before; it will
be hard to resist these potentially high and quick profits.?
If I proved that rally may continue at that pace and reach highs we can't
yet imagine, we know it will necessarily stop abruptly and end in a crash
of epic proportions. Its origin comes from high excess liquidities (to the
tune of $13 trillions) and a sense of lower risk that caused lower credit
default spread, which fed into itself.
Those who believe that this crash can be anticipated, through fundamental
or technical analysis and that they will be able to get out in time will
learn that it is an illusion. We know that a moment before it will happen
the level of the market will have reached new highs as will the sense of
"But how do we know when irrational exuberance has unduly escalated asset
values, which then become subject to unexpected and prolonged contractions
as they have in Japan over the past decade? And how do we factor that
assessment into monetary policy??
We as central bankers need not be concerned if a collapsing financial asset
bubble does not threaten to impair the real economy, its production, jobs,
and price stability.  Indeed, the sharp stock market break of 1987 had few
negative consequences for the economy.?
But we should not underestimate or become complacent about the complexity
of the interactions of asset markets and the economy.  Thus, evaluating
shifts in balance sheets generally, and in asset prices particularly, must
be an integral part of the development of monetary policy." 

Remarks by Chairman Alan Greenspan 
The Challenge of Central Banking in a Democratic Society 
At the Annual Dinner and Francis Boyer Lecture of 
The American Enterprise Institute for Public Policy Research, 
Washington, D.C.  
December 5, 1996
"Our day-by-day experiences with the effectiveness of flexible markets as
they adjust to, and correct, imbalances can readily lead us to the
conclusion that once markets are purged of rigidities, macroeconomic
disturbances will become a historical relic.  However, the penchant of
humans for quirky, often irrational, behavior gets in the way of this
A discontinuity in valuation judgments, often the cause or consequence of a
building and bursting of a bubble, can occasionally destabilize even the
most liquid and flexible of markets.  I do not have much to add on this
issue except to reiterate our need to better understand it."
Remarks by Chairman Alan Greenspan
Globalization and Innovation
At the Conference on Bank Structure and Competition,
sponsored by the Federal Reserve Bank of Chicago,
Chicago, Illinois (via satellite)
May 6, 2004 
"Thus, this vast increase in the market value of asset claims is in part the
indirect result of investors accepting lower compensation for risk.  Such
an increase in market value is too often viewed by market participants as
structural and permanent.  To some extent, those higher values may be
reflecting the increased flexibility and resilience of our economy.  But
what they perceive as newly abundant liquidity can readily disappear.  Any
onset of increased investor caution elevates risk premiums and, as a
consequence, lowers asset values and promotes the liquidation of the debt
that supported higher asset prices.  This is the reason that history has
not dealt kindly with the aftermath of protracted periods of low risk
Remarks by Chairman Alan Greenspan
Reflections on Central Banking
At a Symposium Sponsored by the Federal Reserve Bank of Kansas City, 
Jackson Hole, Wyoming
August 26, 2005
The purpose of this letter is neither to avoid a rally nor the following
crash: it can't be done, believing otherwise would be?conceited. I only
hope here to be able to alert a few and avoid them losses they can't afford
to take. For most of the others we already know this letter will be
considered as surrealistically alarmist and will be discounted by those who
precisely consider themselves as pragmatic.
The present Asset Price Bubble is not due to any irrational exuberance and
its inflation and future burst can be mathematically ?and rationally
This and the timing of the burst are among the subject exposed in my Tract:
An Inquiry Into the Nature and the Causes of the Great Depression A
Specific Application of Employment, Interest and Money 
Only a sustained yield of the 30 years Treasury Bonds above 3.90% would
vindicate that analysis.
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