Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that.
“As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms — of the 19th century under colonial economies, or after World War II when 40% of the world’s population remained under communism, socialism, or was otherwise isolated — were not nearly as global as this one.
Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world — real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.
The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.
Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact — except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) — because the private sector tightened monetary conditions.”
Faber is always interesting to read, and this piece is no exception . . .
Synchronized Boom, Synchronized Bust
WSJ, FEBRUARY 18, 2009
Bad U.S. monetary policy had global consequences