Wednesday, June 10, 2009

Bubbles & Manias

I came across this nice little graphic that generically depicts the market swings that occur during manias and bubbles. The graphic was posted on Jesse's Café Américain, an excellent, albeit dire, economics and finance blog that New York Nick pointed me too. The figure originally came from one Dr. Rodrigue at Hofstra University.

The eponymous "Jesse" seems to know his stuff, although I'm certainly not knowledgeable enough to know one way or the other, the admission of which is proof enough that those of you reading my opinions on the economy and the policies created to effect it should stick with caveat emptor.

That said, I'm pretty skeptical of everyone's enthrallment with the "green shoots" of economic recovery. Unemployment is still increasing in absolute terms, some assets' values are still dropping---most obviously housing, which precipitated the entire collapse---and the financial industry is still shackled with nasty debt. Any apparent recovery now would be artificial and lead to yet another empty, unsupported bubble. How does anyone expect the economy to grind forward when so many people have lost their jobs, and thus have no money to spend to prop up GDP? Consumption by households was 76% of nominal GDP in 2006. Where will this recovery come from? Remember that scene from Shawshank Redemption when the U.S. Army launches a nuclear weapon at one of the alien motherships, thinking the bomb will get through their fancy alien energy shields, and then for a moment everybody thinks the bomb worked and all their problems are solved, but then the smoke clears and the ship is still intact, floating above a flattened metropolis? It's gonna be something like that.

Anyway, to counteract the glum I've pasted a picture of the album cover from Kenny Loggins' "Return to Pooh Corner" below the "manias and bubbles" one. Now everybody go out and spend! Consume Kenny Loggins concept albums!


EchoWhiskey said...

RE: the movie. Independence Day?

Brice Lord said...

You don't remember that scene from the Shawshank Redemption? It was right after the first scene with the bull queers. But fortunately the Fresh Prince and The Fly save humanity.