FIRE Economy | timiacono.com - Part 4

Young Traders, Fed Rate Hikes, Oh My!

Another reminder of how far removed the financial world now is from what might have been considered normal comes via this Bloomberg story that asks the question of how those new to Wall Street – who only know zero percent interest rates – might react to the first Federal Reserve tightening cycle in a decade, starting sometime later this year (if all goes well).

I never grow tired of looking at former Fed Chief Alan Greenspan’s 2004-2006 “baby steps” normalization campaign that simultaneously restored interest rates to normal levels while fostering the biggest asset bubble(s) known to Man.

The fact that one-third of Wall Street traders only know ZIRP will probably be the least of the financial world’s problems if rates ever do rise significantly since “too low for too long”, while never being acknowledge by central bankers as playing any role in asset bubbles, will surely  lead to all kinds of new and interesting developments.

China Stock Market Boom Explained

From this story at Quartz comes a rather simple explanation for why China’s stock market has been on a tear, now commonly referred to as perhaps the most obvious asset bubble in a world that has become increasingly full of and disturbingly dependent upon asset bubbles.

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In the spirit of Mark Twain’s “history doesn’t repeat, it rhymes”, here’s Nobel laureate and bubble spotter extraordinaire Robert Shiller talking about the latest asset bubble(s):

On when the Fed should start raising interest rates:

If I was asked to testify before them I might reconsider, but there is a tendency for central banks to ignore speculative bubbles until it’s too late. It may already be too late. Stock markets are quite high and prices in the real estate market are getting high.

And, on the economy, Shiller speaks the unspeakable:

A lot of people feel, down deep, “I know we’re not getting out of this”.

A World Drowning in Debt

I don’t know the source of all the data presented in the chart below, recently stumbled upon in this item at the Confounded Interest blog, but nothing about it looks to be out of order. The only major shortfall would appear to be that China is not included and, after reading stories like this one, you have to wonder how they would stack up.

Everyone knows about Japan’s public debt, but the business and bank debt in the U.K. was a bit of a surprise to me. Also, it’s nice to see that our neighbors to the north have now caught up to the U.S. (or passed us – it’s hard to tell) as indebted spendthrifts.

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