Bubbles burst for different reasons

verfasst von CRASH_GURU, 27.03.2004, 09:45

-->Der erste Teil birgt nichts neues für die meisten hier aber den Gedanken weiter unten fand ich ganz interessant:

The Stir-Fried World

...continued

The global economy is in a period of high productivity growth and the market barriers prevent the full realization of the growth potential. Hence, the right market equilibrium is for a growth rate below potential and some deflation. Monetary authorities, mainly the Fed, are making a tragic mistake trying to justify loose monetary policy on tame CPI inflation, in my view.

Bubbles are not necessarily bad. A good bubble fools rich people into investing more in a poor economy, which increases the capital and labor ratio and boosts labor pricing power. Most investment bubbles are eventually beneficial for economic development. Indeed, successful economic development is probably an investment bubble, in my view.

Over-consumption makes a bubble dangerous. When the artificial worth of paper fools people into spending too much money, i.e. saving less and borrowing more from foreigners, it is likely to be followed by a prolonged period of low growth with high savings and a current account surplus. The US economy should follow this path.

But Mr Greenspan disagrees with this diagnosis. He wants the US economy to grow out of its problem. Instead of consuming less to save more, he seems to believe that a weak dollar would allow the US to earn more from exports to make up for the savings shortfall. This strategy is possible only if other people play the game, i.e. Chinese, Europeans and Japanese should consume more to buy $500 billion more of goods from the US. However, a massive bubble has caused the US consumption excess. Other economies have to create bubbles equally big to consume as much. This is highly unlikely, in my view.

Europeans and Japanese don’t strike me as people who would create big bubbles. Bubbles happen when a society functions on extreme competitiveness, i.e. people try to get ahead of each other by some measure. A bubble is a redistribution game. People usually believe that they are smarter than others are. Hence, a “bigger fool” game could take hold in such societies. When people cannot have or don’t believe in rat races, bubbles become much less likely.

Europeans are using public policies -mandating longer holidays and punishing people for working overtime, for examples- to prevent rat races. Japanese gamble but collectively. This makes bubbles less likely but big when they happen. It seems that Japan has a very big bubble every 50 years. The next bubble in Japan seems to be four decades away.

The Chinese economy comes up with a bubble whenever it has a chance. Chinese people have a high preference for gambling. If you want to verify this, just check out the casino nearest to you. China is still in the early stages of economic development, i.e. its stock of wealth is still low. Its bubbles are mostly in quantities rather than prices. This is quite similar to what occurred in the US during the nineteenth century.

As the Fed insists on growing out of the US problem, it makes the property bubbles bigger and bigger everywhere. The resulting extra debt becomes more and more dangerous for the global economy. Last year, the debt grew by three times as much sd GDP in the US and 2.7 times in China. The ratios could rise further as bubbles need an escalating amount of liquidity to stay alive.

China is doing the right thing to slow its economy before the US does. This will give China more options. The Bank of England and the Reserve Bank of Australia are trying to cool their property bubbles. These actions will decrease the multiplier effect from the low Fed interest rate on the global economy; ceterus paribus, more Fed stimulus would be required to sustain the momentum in the US economy.

Bubbles burst for different reasons. A bubble often crumbles under its own weight, as there is not enough liquidity to satisfy its exponential appetite. Sometimes, a small event, (e.g. the devaluation of the Thai baht) could be a catalyst. I suspect that tumbling property prices in some peripheral market may cause the whole thing to go bang.

Andy Xie
Morgan Stanley Asia/Pacific

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• Bubbles burst for different reasons - CRASH_GURU, 27.03.2004, 09:45