It's All One Bubble

It must be gratifying to readers of this blog to see themes discussed here picked up by the mainstream media. This Mcall.com story considers that financial bubbles have shown up everywhere and that the root problem is massive credit creation.

"It might be reasonable to suppose that they aren't individual bubbles but rather one mega-bubble, the totality of the economic and financial world we live in."

"Some Wall Street veterans say the global bond and mortgage markets may constitute the scariest bubble of all, as investors and lenders have fallen over themselves to extend credit to companies and individuals at generously low rates of interest."

"But true bubbles on the scale of dot-coms in the late 1990s, or Japanese stocks in 1988-89, or tulip bulbs in 1636-40, are relative rarities." When we look back on this era, if the various bubbles may be viewed as one, doesn't that address the "rarity" issue?

"Jeremy Grantham believes the blue-chip Standard & Poor's 500 stock index should fall to about 730 to be 'fairly valued.' That would be a drop of about 35 percent." And what would be the value of the Nasdaq, which taken as a whole has negative earnings?

"Grantham said: The Federal Reserve, by cutting interest rates to generational lows in recent years, inflated a new crop of financial market bubbles by giving investors the wherewithal to aggressively bid up the values of bonds, real estate and (once again) stocks, he said. That's what easy money will do, and that's what it did."