Three ideas struck me form my reading of the FT this morning. First, Mark Carney is still talking about the 'normalisation' of interest rates.
Second, Martin Wolf points out how improbable this is despite pointing out that:
Ten-year US Treasury inflation-protected securities (TIPS) yielded 0.6 per cent in late September, while even 30-year TIPS yielded just 1.3 per cent.
And that:
According to Andy Haldane, the Bank of England's chief economist, these are the lowest real interest rates for 5,000 years.
In other words, we're not living in anything that might be described as 'normal times', from which Wolf thinks we can only hope for escape in growth terms by the creation of another credit boom, most probably in the USA, which requires that rates remain low. I think he has little faith in the chances of that happening.
Third, Gillian Tett (in easily the most interesting article) notes that since the 2008 crash a weird tendency has developed in all asset markets that they rise and fall in close correlation with each other. This has not been the long term trend, and is a characteristic only usually found in periods of great stress. She admits the causes are not wholly known, but maybe excess QE cash coup;led with integrated modern risk management that can reallocate capital quickly between markets are factors.
What really matters is the consequence: what has been created is a risk transmission mechanism that means there are no safe havens in the event of a down turn. So if copper prices fall so are other asset prices likely to do so. The implication is obvious: no one is immune from crashes in that case. We not only have globalisation, we have universalisation (my word, not Tett's).
Put it all together and what do we have? Clueless markets traded by automatons in search of a consistent dream that something still might happen to restore their faith in rentierism. It's not pretty.
No wonder I say it is time to think outside the constraints of the current markets. The solution is very obviously not within them.
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The comment about automatons is probably closer to reality than it looks. Whilst human traders are behaving like sheep large amount of trading volume is done by relatively stupid algorithms that look to gain from market fluctuations. These then look like real trading causing the human traders to follow suit. None of this represents the supposed economic function of trading markets, the efficient allocation of resources based on crowd sourcing the wisdom of professional investors knowledge of a particular market.
I was talking to my stockbroker earlier this year (been with the same bunch for 35 years), we had lunch and talked markets – and both wondered about the gyrations of some of the stocks – not so much the daily up & down due to day traders but the “it lost 30% of capitalisation in one month” style of thing – for no obvious reason. He was as clueless as I was & we concluded that markets are, for the most part wholly irrational & very bad at assigning real value – which suggests that stupidity is an emergent function of lots of trading algorithms.
Dear Mike,
There are a lot of weird things going on in the markets that tend to separate true value ( based on the cold hard logic of business profitability and cash flow ) that are distorting market prices.
Some of these things are –
(1) High-frequency trading by computers. Maybe these can be ignored as they are short-term problems, but sometimes they can result in bizzare share price movements ( Fat-finger problems ).
(2) Comnpany directors can buy back their own company shares. These creates a tighter market in those shares and ups the P/E ratios and enhances EPS ( some of which are sometimes against flat-performing companies ) These manipulaions “flatte4r to deceive”. Anybody buying such “boosted shares” should noe the admission of directors that the money cannot be better used in their business, which is actually a bad sign.
(3) Some companies go down the high deividend route. High dividend whacks are great in the current low interest environment. Hoswever some companies are paing dividends out of new or enhanced bank loans. Without underlying growth in business fundamentals, this process is not sustainable and then inevitably the dividend is cut and the shares tank.
(4) Then there is the “Will they, Won’t they” scenario about whether or not or when Central Banks will increase bank rate. This is impactful both in the uK and the USA.
(5) Then there is the “Will they, Won’t they” scenario relating to QE ( In USA, introduction of QE4 ).
(6) Then there is what is happening in China and World Trade.
(7) Then there is the greater risk of world conflict impacting of supply of raw materials and energy.
(8) Prevalence of Company specific scandals ( VW, HSBC etc. ) and Sector Failures ( The Baking System ).
These are but a few of the things that might be impacting your share price.
I am somewaht surprised that your stockbroker cannot give you some “rationales” for price movements on specific shares.
Either he doesn’t fully know and understand the company specifics or maybe he is just being honest and is as baffled as everybody else why share values do not fully reflect company value.
The Market Walk is a great theory for wider market price volatily.
Plus there is the behavioural school that works on emotions and sentiments.
All of the above however, does, in aggregate, make share investing interesting, albeit with greater and greater tranches of volatility.
And in the last six months or so, at least in the UK, with some heavy losses being incurred by investors associated with fall of FTSE 100 from above 7000 down to 6000 ( approx ).
There is going to have to be a reset sometime.
Markets work by going up and down.
QE has interfered with that process.
Only when we test a true bottom will sense and normality return to markets.
Should that happen life for the many, many will be painful.
The longer we have the market manipulations ( and if anybody else was doing it fraud ) allied with ultra-low abnormal interest rates, the further away we are for any real adjustment.
Free markets work by over-exuberance, crash, bankruptcy and clear-out, establishment of a new base and then forward progression from there, clearing out old and defective organisations abd the Over-optimistic / gullibe and leaving space for new and growing ones.
This mechanism has been interfered with by Politicians, for the best of reasons e.g. protection of over-extended business and consumers, but economic reality cannot be bucked easily and painlessly and the pain of adjustment is just being deferred and right-shifted.
Economic reality cannot be “bucked”. Another recession is becoming increasingly likely
QE is normal
Deal with it
It’s here to stay
For a very long time
Believe you me, I accept that QE is now “the new normal”.
To do anything else would be economic illiteracy.
I am indeed living with its consequences, as is everybody else.
I agree that it could well be here to stay for a long time, but that is only because it favours those with wealth who have seen the price of their bonds, property, shares and alternative portfolios sky-rocket.
Why Labour should be supporting the re-distribution of wealth fostered by Bankers QE would be bizarre were it not for over-dependence of banks on mortgage lending and the over-dependence of central Government and private individuals and companies on over-borrowing.
Labour is not supporting it
Possibly Corbyn Labour is right not supporting Banker’s QE.
But the Labour, I knew, supported Banker’s QE as they, along with the BoE, invented it as a Policy.
So I guess, it just depends who we think of as Labour e.g. New Labour ( supporting Bankers QE ) and Corbyn Labour ( thinking it can be improved with PQE ).
You cannot blame the general public for being confused if Labour speaks with two voices!
I think that’s a little surreal
All parties change policies
Especially in the light of evidence
Richard and Richard C,
I don’t see any fundamental difference between QE and PQE. In its narrowest sense QE can be regarded as an asset swap. The central bank buys up bonds from the private sector. But, if at the same time the Treasury is selling bonds to the private sector then its pretty obvious that QE, in a wider sense, is just a work-around to avoid the stigma of it being seen to be directly selling bonds to its central bank.
There’s nothing wrong in doing any of this providing inflation is under control which it obviously is right now. QE has the effect of reducing long term interest rates due to the extra demand for bonds. The central bank being the additional buyer.
So how much should government spend using PQE as a ‘fund raiser’? I would say it depends on what it wants longer term interest rates to be. If higher then there should be little or no PQE. Govt should just sell more bonds. If lower then more PQE. PQE and QE will both lower longer term interest rates.
And why would govt want lower or higher longer term interest rates? The only reason I can think of is in exchange rate control. Higher rates will (all other factors being equal) tend to attract more conversion from foreign currencies which will push the pound higher.
Maybe we do need a lower pound right now and PQE could help achieve that.
QE is effectively non-borrowing.
It suggests after 7 years that spending by non-borrowing is not inflationary.
Inflation rate at zero. Govt bond yields at an all time low.
Surely after such empirical evidence it is an act of faith to believe otherwise.
Now what could we learn from, and achieve with, that evidence ?
The reason why we think Banker’s QE is non-inflationary is largely because of the way CPI measures inflation.
CPI does not measure asset price inflation and therefore those impacts of QE ( conventiently ) get overlooked.
Additinally, the reasons why we are having low inflation is that the world has not recovered from the 2008 recession.
Any apparent life in the UK and USA economy has come through monetary stimulation and market manipulation rather than via solid “boots on ground” growth.
Bankers QE has done a great job of “masking the impacts” of depression and has done a great job in transferring more wealth to the wealthy.
Bankers QE is not a tried and tested policy instrument as we have yet to observe what will happen when QE is withdrawn ( if it ever is ) or if interest rates revert to circa 4%.
Only when we have securely navigated out of the 2008 recession, have avoided a 2015/2016 recession and are on a path of “sustainable growth” ( NOTE- That being an oxymoron ), will be know that QE has done its job.
It amuses me when people get this backwards.
Once you do QE – i.e. get rid of government corporate welfare in the form of guaranteed coupons on government bonds – then the price of private assets returns to *normal*.
What issuing government bonds does is provide safety, and a reward, to people who want to cause a paradox of thrift by saving.
And by doing so it *suppresses* the price of private assets.
I have yet to see any coherent argument as to why the state should continue to suppress the price of assets and thereby hold up yields on private assets. I haven’t seen any coherent argument as to why savers, who are causing the lack of income problem by their actions, should be generally rewarded for doing so.
Pretty much all the arguments so far seem to be favouring the subsidising of debt by the state – in order to maintain the concentration of equity – or trying to make the argument that ‘pensions will be affected’ – quietly ignoring the simple fact that pensions are a small part of the global market in government debt and that pensions are better fixed by reversing the move from ‘defined benefit’ to ‘defined contribution’ schemes. A reversal that will need direct government support since the private system would find it impossible to deliver.
Markets have always been manipulated. It’s the reverse of what you think, there has not been enough manipulation.
The fact that there is still faith in ‘normalisation’ is itself indicative of cover-up, mendacity and madness. Of course the Neo-liberal discourse includes the idea that normal will always return no matter what inter-generational suffering this causes at a human level because it never touches the rentiers that make these pronouncements.
In his ghastly speech, Hunt talked of a 40 yeat time span to make this country ‘great’ (I.e a culturally and psychologically impoverished populace serving the rentier moloch)-the frightening thing is that if/when there is the next crisis it will be explained away as’that’s what markets do’.
Re. Normalisation of interest rates.
This is impossible because –
(1) Banks have over-lend.
(2) Borrowers have over-borrowed.
UK obsession with house prices has starved productive economy of funds.
The only solution I can see is –
(1) Dissolve the banks and/or Nationalise them.
(2) Adopt debt-forgiveness for domestic home owners with mortgages who are over-extended and unable to meet interest payments allied with Confiscation. Those who cannot pay their debts will have houses transferred to State Enity and will be given a secured tenancy at reasonable rent.
Thse are “top of head” thoughts but may not prove to be too far off the mark.
A State Investment bank will be need to channel monies into productive use instead of bossting Housing Demand.
Mortgages in future should be state provided or managed and value-regulated with a view to stabilising house prices long term, or, to mnanage affordability with a gradual migration down to levels approximately 50% of status quo.
A interesting point:
“UK obsession with house prices has starved productive economy of funds”
What you’ve said is true, and it’s a useful observation. But you will understand far more if you see it as part of a bigger shift from productive investment to rent-seeking.
Rents on property are easy to see: but had you considered that the income from Treasuries and Gilts is a rent over taxpayers? Or that the privatused train companies, with their subsidies, excessive fares, and utter failure to invest, are exacting a rent on both the taxpayer and the travelling public? And what of the ‘tech’ and pharma comanies who do not innovate, do not take risks, and merely live off the rent of their patent portfolios?
The wealthy do not invest, and they do not create wealth: they purchase rents, and there is no economuc growth in that.
Other points?
I don’t think that governments shouod invest directly in industry. It’s not what they’re good at, and it’s not what they’re for.
No, they should invest indirectly: infrastructure, education, skills, maintaining a financial system that supports and encourages productive investment. And, above all, by *governing* – running a fair and effective system of laws where there is a level playing field and no incentives to seek profits through destructive or dishonest behaviour.
Re.”I don’t think that governments shouod invest directly in industry. It’s not what they’re good at, and it’s not what they’re for.
While I overall agree with that sentiment, there is currently a “gap” in provision of finance for industry in the UK.
Large companies, in the main, are well, if expensively provided for, by the Commercial Arms of major banks who arrange mergers and share launches etc.
There is also reqasonable coverage for firms raising money via VCT’s and the minor stock markets ( AIM etc. ).
Where we aooear to be failing somewhat is funds availability for smaller companies, which do not appear to be well-served by mortgage-obsessed high street banks. Maybe web innovations like Kickstarter will help.
I would advocate the creation of a Business Bank, dedicated to helping UK business ( largely SME ). Its seed capital could be publicly funded but it could be managed commercially.
Re “No, they should invest indirectly: infrastructure, education, skills, maintaining a financial system that supports and encourages productive investment. And, above all, by *governing* — running a fair and effective system of laws where there is a level playing field and no incentives to seek profits through destructive or dishonest behaviour”.
I love your last statement, but we are so far away from your ideal that I do not know where to start. At the moment destructive and dishonest behaviour, as witnessed by the various scandals e.g. VW and the banking crisis, seem indicative of a certain type and class of mal-entrepreneurs.
‘Clueless markets traded by automatons in search of a consistent dream that something still might happen to restore their faith in rentierism. It’s not pretty.’
I overheard some energy analysts on the train talking about high frequency trading. They estimated that this now constituted 50% of trades. I wouldn’t call that a search for ‘rentierism’. It’s just theft, pure and simple.
However, such high frequency trading is legal.
It is possible that other people will be trading in the opposite direction!
Makes and loses lots of money for lots of people.
It is only really a problem if banks are left holding the baby, as they did with the bankers bailouts where profiteering were paid out on their bets, the banks lost big-time, we bailed out the banks and then the taxpayer lost big time.
Why more people are not more angry about this I do not know.
Probably lack of understanding !
i know a person who owns a company which develops software for high frquency trading, he told me it is very competitive (selling the software) as success is measured in terms of shaving microseconds or even nanoseconds off each share trade event. What next, pico or femptoseconds per trade? The possibility of trading every share on the (financial)planet in a couple of minutes?!!
EU plans to mitigate this ballooning and escalating hyper-trading by putting a small tax charge on each and every transaction ( AKA Tobin Tax ).
The hyper-traders don’t like it because it will either put an impost on their earnings or will kill it stone dead.
It is in the novel areas of finance that the next scandals will come from, that is if we ever succeed in clearing up the mess from the last lot ( 2008 / 2009 ).
My view: the vast transfer of wealth associated with our worsening inequality is the reason for the current correlation across asset classes.
In a steady state economy, with a stable distribution of wealth, a dynamic equilibrium across the asset classes is normal: more money in bonds, or in defensive assets? Less money, then, in equities and speculative assets.
It isn’t quite a zero-sum game – we assume a moderate but continuous long-term growth in the entire economy, and productive investments create value – but the different markets classes are competing for investors’ money and a downturn in one of them makes other classes more attractive.
What we have now is an unending torrent of money running into every class of investment – not quite the avalanche of the early 2000’s and the ‘flight to garbage’, but close enough – and this is swamping the ‘competitive’ effect that drives flows between the market types and gives us the familiar inverse correlation.
Today, the only “competitive” effect is that wealthy people and cash-rich company treasurers sometimes get nervous, and sometimes get enthusiastic: and every market, everywhere, rises faster; or it falls (a little) as the money stays in cash, or Treasuries, or in the oil wells.
In effect, there are now only two asset class: cash held by the rich; and everything else.
The future?
I say ‘unending’ torrent, but anything which can’t go on forever, won’t. I fear that it will end badly: and a single ‘1929’ event is nowhere near the magnitude of readjustment that will be required to bring the world economy back into balance, rationality, and sustainable stability.
The reason why anybody is buying UK bonds TODAY ( Not historically ) is due to “safety illusion”.
It is certainly not due to yield.
If that “safety illusion” ever gets shattered, bond prices have only got one direction to go!
It’s actually because there isn’t anything else to do with the Sterling at that point. You either put it on deposit at a bank (which then gives the bank the same choice – buy a bond or leave it on deposit at the central bank), or you buy a bond with it.
Neil,
You could buy real things (like Scotch Whisky!) with those ££ instead of buying bonds with guaranteed coupon payments. So if the big net exporters to the UK did that with the ££ they’d earned selling us stuff, then of course they wouldn’t be big net exporters any longer.
It’s the same for domestic savers too. They’d have less reason to save if they couldn’t buy bonds. The alternative to selling bonds is to allow holders of ££ to put their money on deposit in the same way as a high street bank allows its customers to do that. The interest paid would vary depending on the term of the deposit etc. If govt wanted more savings govt would offer better deals ie higher interest rates.
So I don’t really understand the argument that interest payments are just ‘corporate welfare’.
Oddly, nearly everyone else is so worried about the govt budget deficit when that equals, to the penny, the surplus or the savings of the non-government sector. They are also worried about low interest rates. Don’t they see the problem here? Raising interest rates will increase savings which will increase the govt’s deficit further unless govt gives everyone another reason not to save. ie Deliberately creates a bit more inflation in the economy by means of a fiscal stimulus.
Bigger and longer recessions are going to continue until sanity finally prevails and western economies are rebalanced towards actually making things again and finance is again strongly regulated.
While banks are still allowed to use the cheap money the Central banks, in the USA and Britain in particular, give them to fuel speculation and pushing asset prices sky-high at the expense of the real productive economy, nothing is ever going to change.
FDR realised this back in the 1930s, his New Deal policies bringing the USA out of the depression until he was forced to change course, plunging the economy back into recession again. Only the spending of World War II pulled them back out of it again.
I totally agree with your analysis.
Few inb power ( or on the borders of power ) appear to support it though.
People are thinking of more and more “work-arounds and fixes”, without addressing any of the real problems.
trouble is, sanity can’t prevail until the quasi-religious belief that the ‘market’ metaphysically underpins our reality is unchangeable by human will starts to shift and after 40 years of indoctrination by all Parties/Media/mainstream Economics it’s going to take one almighty psychological ‘enema’ to shift it-people don’t give up their idols until the ball and chain of an unpalatable reality comes swinging through their lounge window and even then, even then, such is the brainwashing they are likely to think: ‘Oh well it was my fault, I just didn’t spin that treadmill fast enough.’
As Steve Randy Waldman hints the “elusive dream” the market automatons search for is Gary Gorton’s “informationally insensitive” safe asset:-
http://www.interfluidity.com/v2/6174.html
Of course, there’s no such thing because government’s are still in the Stone Age when it comes to regulating inflation and particularly deflation with so many unpredictable factors forming the basis of regulatory attention. As John Smithin suggests in his 1996 book “Macroeconomic Policy And The Future Of Capitalism” the alternative is for governments to recognise that they can’t control all unpredictability but they can ensure there’s always a “positive” rate of rate of interest on savings (informationally insensitive safe assets) to provide the “stable platform” to promote more risky investment. Such an argument, of course, doesn’t neglect the other bedrock argument that paying attention to the equitable distribution of income supports the “Invisible Hand” demand which in turn allows the expression of the self-interest of the baker, brewer and butcher.
Outside of Japan, where do we have deflation?
In the UK, as measured by CPI, we have, in my view, “stable money” ( ignoring the asset price booms, which appear to give a lie to this statement ).
-0.1% and +0.1 CPI are virtually indistinguishable as numbers. The only difference is definitional and, probably more importantly psychological.
I am confident that some element of inflation, possibly associated with the “living wage”, will return to the UK economy when temporary factors unwind, unless, of course, there is a humdinger of a world recession.
@ Neil Wilson
“I haven’t seen any coherent argument as to why savers, who are causing the lack of income problem by their actions, should be generally rewarded for doing so.”
Because if you are lucky enough to be able to save (and most of us would like the psychological security that goes along with that) you are more vulnerable to accepting anti-inflation arguments such as NAIRU and Thatcher’s and Cameron’s “there’s no such thing as public money.” Within carefully justified limits there would seem to be an argument for a sovereign government creating at the least index-linked saving schemes for both citizens and businesses (financial services being the exception). In the case of citizens there would be a quantity limit and a term limit for businesses.
Re. “Within carefully justified limits there would seem to be an argument for a sovereign government creating at the least index-linked saving schemes for (both) citizens”.
I think that you are arguing that Savings are a good thing because they promote psychological wellbeing and a sense of safety.
You further argue that Savers should, within carefully justified limits” be protected from the effects of inflation via index-linked savings schemes.
While agreeing, on a personal basis, with both your points that does rather beg certain questions.
(1) What is the Societal value of Savings?
(2) How should Savers be Remunerated or Disincentivised?
(3) Should Savers be charged a small fee for delivering the individual “well-being benefit”.
(4) Should savers be rewarded for thrift.
(5) What is the mechanism for recycling savings into much-needed investment in productive business sectors? Current thinking seems to suggest that fractional reserve banking model no longer applies.
(6) With Government schemes, banks no longer needed savers monies, hence interest rates were demolished. So what, if any use, are customer savings for the banks?
(7) With savers investing in Government Bonds ( whether index-linked or not ) the money is not necessarily and primarily going into business.
(8) Above all, why should savers, as a specific group, be given protection against the ravages of inflation, while other people, such as low-paid and low-negotiation-power workers are not. Why should those Savers, who are in the economically productive age-range, be so special?
I have always suspected that low inflation obsessions were more to do with protecting creditors in a debt-ridden society which is creating wealth transference via the housing bubbles.
people deride the 70’s but i can remember my not well off parents being able to pay the mortgage and have food on the table-what’s the point of ultra low inflation when many can’t do that?
As far as I can see the whole point of the obsession with inflation is the preservation of the sum owed to the owners of debt
The wealth transference is largely from the young to the old.
The young borrow more and more money ( due to high house prices ) from the banks so that they can “extract the houses” from the clutches of the older generation — at the highest price the elderly can possibly extract.
The main problem that is ruining the previous good housing market ( where housing demand, supply and money was approximately “in sync” ) is the imbalance between house prices and wages. Houses are becoming increasingly unaffordable in terms of what the median eaqrning employee/ family can afford.
As there is nothing whatsoever to show that wages will keep up with houseprices in the long-term ( and that wages are likely to tail off with automation etc. ) there is no mechanism for getting these back into line, without a substantial house price downwards adjustment.
The gap is currently bridged by more and more lending and borrowing and more and more innovative ( and self-defeating ) Government demand-boosting schemes, pushing both borrowers and lenders up the risk curve.
The lenders tend to be backed by Government, so what we get is more and more personal and familial risk being transferred to the younger home buyers ( in their thirties and forties ) and/or people being excluded from home ownerhsip altogether.
Inflation is not good and house price inflation is not good either.
I see real merit in inflation
It writes off debt and reallocates wealth
Large parts of the baby boom generation benefitted from it
And now they will not pass the benefit on
What inflation rate would you like to see?
Would you pre-warn people of that rate? Because if known it would tend to then be priced in losing the effect. And if you were to not tell people how would you reconcile such deception with your moral and religious views?
There is no Ricardian equivalence to inflation
We announce a desired rate now and if there was any such adjustment it has very clearly failed
My preferred rate? More than 2%
4% would appear to be necessary for monetary policy to have any impact
Now we can live with fiscal policy alone, in my view. But if others think not then inflation of 4% or more is needed
There’s still a lot of good economic news about. 2014 was the best ever year for international trade. People exchanged more goods and services with foreigners than ever before in human history.
It looks like 2015 won’t quite match it , but then we have sanctions with Russia , and a lot of government interference in terms of capital and exchange controls ( eg Yuan artificially pegged to the dollar within a certain range, and the Euro to the Lev, Krone and much of West Africa ).
If a trader reckons a top of the range e-bike is worth nine punts, and the opposite dude reckons it’s worth eight, and the government says a third number, then you have a three way negotiation where at least one party ( the government ) isn’t budging. Some analysts say that because some exchanges can’t be priced properly is the underlying reason for the worsening trade statistics.
That’s advocating free trade though, which is a naughty phrase in this part of the web.
Free trade is an illusion. One way or another everything is corrupt. Your assertions that markets are isolated from this is naive
The Chinese have noted that when stock prices rise, nominal growth (and real growth) decline, and visa versa. Their stock market is simpler than in other countries, but there is probably truth in that across the world, as traders try to make a return without doing anything which benefits the real economy. Of course if inflation is high there is some benefit to this.
A public savings account for everyone is a better idea to control inflation.
Dear Ricahrd M
Would it be possible for you to write a short article on inflation if you have not already done so.
This would give people an opportunity to better understand this topic and to allow them to comment on your ideas.
You could even think of writing another book – “The Joys of Inflation”.
Inflation, and how it effects the various stakeholders, is a vital subject and far too little understood.
For heaven’s sake, if you know anything about this you know you cannot risk the offence of tipping off
Stop writing nonsense
House price inflation has no relation to the overall rate of inflation. I tend to agree with Richard C’s view on the problems with the housing market. Overall though, surely in these unusual economic times to secure our future by investing in solid long term projects, namely, people. The market is not God.
I suppose the counter-factual would be to ask whether “markets” are any more or less rational than before.
Why would there be more rationality? Has the rationale changed in confidence?
Are markets less rational (with much more information available)?
Post 2007/08, the only doubt is whether or not sovereign currencies again decide to back-stop the system. I can’t see that being repeatable in a lifetime unless voters get really distracted.
The market should be a tool for a strong government to use for the greater good of its people. The Market has no rationale, that’s why it fails. It should be fluid, and be able to adapt to need not greed
Hi,
There is nothing wrong with the essence of markets, providing they are honest.
The problem is that the markets have been “captured” by manipulative company directions, manipulated by “free money” and the actions of Parallel Banking.
To get honesty back into the market would be a major task and would need a reigning in of system-trading by computers ( envisaged by EU ) and totally out of control derivative markets ( seemingly ignored by the Regulators ) that are used purely for gambling purposes, rather than for the protective purpose4s for which they were originally developed.
It is the scale of largely unregulated transactions in the parallel banking system that is truly scary.
Unless markets are regulated and controlled, which will need world-wide co-operation, we are exposed to untold dangers.
The day that shares and bonds were priced sensibly in terms of their underlying busienss performance, if that ever existed, are far behind us.
Unless markets can be proerly regulated, the State will have to take capital allocation away from the uncontrolled banking and parallel banking system and do the job itself.
This would be more than a shame as the free market, if not grossly leveraged and exploited as it is now, is not a bad method of allocating resources and until roughly the year 2000, did an OK’ish job.
Hard not to agree with your analysis. Although some of it went over my head and think I understood the essence. I do believe that the seeds for what we have now were sown in the early eighties.