A looming recession triggered by the big financial bubbles

A Looming Recession
Triggered By The Big Financial Bubbles

Nipawin - January 19, 2001 - by: Mario deSantis

monetary policies
The interest rate set by the Bank of Canada, or by the US Federal Reserve Board has a contingent significance on what we buy, on what we save, on what we invest. Our economy is driven by the monetary policies of our central banking agencies. However, with the slump last year of the stock market, there is the impending fear of a looming recession.

don't
think
A decrease of the value of stock would decrease the consuming and investment spending and a recession would take place. Stock market analysts are very superstitious about a possible future recession of the economy, and reassure themselves with optimism by saying that if we don't think abut the big R, then the recession will not come.

overpricing
But, we cannot fool ourselves for ever, and we must realize the existence of financial bubbles in stock and real estate prices, that is the artificial overpricing of stock and real estate which occurs when too much money chases too few assets. Economist David Korten notes that since 1980, according to a McKinsey study, the financial assets of the world's largest economies have been growing at two to three times the rate of growth in gross domestic product (GDP). Therefore, Korten concludes that bubbles are everywhere.

ratio
Further, economist Dean Baker observes that in the last four years the ratio of stock prices to corporate earnings has been increasing to more than thirty to one (30 to 1), that is more than twice the historic average of a ratio of 14.5 to 1 over the last fifty years.

readjustment
The overpriced stock market along with the overprice of real estate is a serious cause of concern, and economists and policy makers should direct their attention to the readjustment of prices in the stock and real estate market.

------------References/endnotes:

The Difference Between Money & Wealth. How out-of-control speculation is destroying real wealth, by David Korten http://iisd.ca/pcdf/1999/wealth.htm

The costs of the stock market bubble, by Dean Baker, Center for Economic and Policy Research, November 27, 2000 http://www.cepr.net/stock_market_bubble.htm

MacLean's Economic Policy Page, by Brian K. MacLean http://www.geocities.com/brian79/

A Looming Recession Triggered By The Big Financial Bubbles

Nipawin - January 19, 2001 - by: Mario deSantis

monetary policies	The interest rate set by the Bank of Canada, or by the US Federal Reserve Board has a contingent significance on what we buy, on what we save, on what we invest. Our economy is driven by the monetary policies of our central banking agencies. However, with the slump last year of the stock market, there is the impending fear of a looming recession.

don't think	A decrease of the value of stock would decrease the consuming and investment spending and a recession would take place. Stock market analysts are very superstitious about a possible future recession of the economy, and reassure themselves with optimism by saying that if we don't think abut the big R, then the recession will not come.

overpricing	But, we cannot fool ourselves for ever, and we must realize the existence of financial bubbles in stock and real estate prices, that is the artificial overpricing of stock and real estate which occurs when too much money chases too few assets. Economist David Korten notes that since 1980, according to a McKinsey study, the financial assets of the world's largest economies have been growing at two to three times the rate of growth in gross domestic product (GDP). Therefore, Korten concludes that bubbles are everywhere.

ratio	Further, economist Dean Baker observes that in the last four years the ratio of stock prices to corporate earnings has been increasing to more than thirty to one (30 to 1), that is more than twice the historic average of a ratio of 14.5 to 1 over the last fifty years.

readjustment	The overpriced stock market along with the overprice of real estate is a serious cause of concern, and economists and policy makers should direct their attention to the readjustment of prices in the stock and real estate market.

------------References/endnotes:

	The Difference Between Money & Wealth. How out-of-control speculation is destroying real wealth, by David Korten http://iisd.ca/pcdf/1999/wealth.htm

	The costs of the stock market bubble, by Dean Baker, Center for Economic and Policy Research, November 27, 2000 http://www.cepr.net/stock_market_bubble.htm

	MacLean's Economic Policy Page, by Brian K. MacLean http://www.geocities.com/brian79/