Friday, November 05, 2010

The Panic of 2008 Is Over

The lead page one story in the WSJ highlights the return of the stock market to pre-crisis levels.

This recovery is almost exactly on time and as expected if you saw the financial crisis as predominantly a financial panic of the 1907 ilk and not as a classic 20th century cyclical recession. Some of us did and the difference was making your money back (and then some, hopefully), versus staying wiped out or halved or wahtever. Obviously nobody from 1907 is still around and almost nobody understands the dynamics of the panics of old, we are steeped in modern age of business cycle recessions, so it took an intellectual leap to adhere to the "financial panic" paradigm and make your investment calls based on that. It would've been nice if our policy makers understood the nature of the crisis in order to make the appropriate policy remedies and avoid inappropriate policy remedies, but it's too late for that.


Blogger Richard said...

This is what happens when the mission statement is "never let a good crisis go to waste." And while your diagnosis is spot on... again... it is also true that our Washington witch doctors have offered up a cure that will be every bit as painful as the ailment they didn't recognize and couldn't cure. Money supply growth is already out-pacing GDP growth, and there is nothing Bernanke and company can do to help Treasury roll over all that debt at less than 1% when inflation is running north of 3.5%.

Romer and Bernstein cheerfully predicted 4% GDP and 1% inflation. They had it exactly backwards.

11:38 AM  
Blogger Donny Baseball said...

True indeed. I have a mentor who told me throughout this crisis that we will sow the seeds of the next crisis so to be on the lookout for that in order to protect yourself and be ready to make some $$$. I think you are correct in focusing on the Fed although I don't think that is the only place to look for the locus of the next crisis. Cheers!

11:42 AM  

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