Bursting Bubbles

Has Uncle Sam just conned the world?

There’s been an element of the pyramid scheme in stock markets for as long as there’s been a stock market. From time to time a pyramid grows into a big bubble, and bursts.

Right now the bubble that’s bursting is US housing, and money lent on it is being written off (even as the dodgy lenders are sending ever more spam). But who is paying? Markets in Europe and Asia appear to be suffering proportionally more than American markets. Does that mean the rest of the world is writing off a (big chunk of now privatised) US national debt?

And why are central banks bailing out their financial industries with huge amounts of public money? If I get into trouble, the best I can hope for is social security, and I’m not even eligible for that while I have a business. But for financial institutions, an altogether different story. Isn’t it massively inflationary to pour in billions of public money like that?

Something here smells of Keynesian intervention. But it’s being applied as an uncontrolled panic measure, a sticking plaster over the symptoms (not the cause) of the underlying problem. Can any good come of that, or is it pouring good money after bad?

Americans have a long history of being smarter investors than the rest of the world. That’s what gives them their big success stories, such as all the biggest names on the ‘net. And it’s probably also why their markets are faring less badly than others right now. But it has an ugly side, and when Uncle Sam unloads dodgy debt while continuing to accrue ever more of it, he’s no better than a con-man. The world is full of suckers.

Posted on August 17, 2007, in economics, international, rants, USA. Bookmark the permalink. 2 Comments.

  1. At least the Bank of England hasn’t indulged in bailing out the commercial banks’ dodgy practices and lack of prudence – not yet at any rate. The BoE tends to be a bit more disciplined than the Fed or ECB, and only lends a) as a last resort, and b) at appropriately punitive interest rates.

    Hopefully the upshot of this sorry tale will be that we all take a much more circumspect view of the merchant bankers’ gimmicks and devices in future.

  1. Pingback: Throwing good money after bad « niq’s soapbox

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