How does the market rally take the economy with it? Confidence? Credit expansion? Why would the central banks tighten the money supply then? To create the bust? The economy would collapse anyway if you leave it on forever, the boom bust cycles are natural.
Dow at 10,000 = XX $Trillion Dow at 14,000 = XXXX $Trillion Just more money, albeit inflationary, public is thinking everything is "ok". Pretty scary whan the Fed keeps printing money to do all this, IMO. Don
"From now on, depressions will be scientifically created." -- Congressman Charles A. Lindbergh Sr. , 1913
Great proof. What's funny is that BEFORE that magical year of 1913 the economy still had its booms and busts. Thinking a bit about it, this is like saying God is behind everything. The system is too complicated to understand so it must be God! Such complex creatures and ecosystems must of had an intelligent designer.
At the time it was regarded as the Great Depression, until the more severe Great Depression occurred in the 1930s
1. Partly the "wealth effect"... market going up, people's stock investments doing better = confidence to spend. 2. The economy used to be cyclical.... things would get overdone in both directions and natural forces would cause them to reverse. But there has been virtually no recessions since '82 (tiny one in early '90s, also tiny in '01, but they probably had to cook the books for that one). Since '82, the "money pump" has been going FULL TILT! Much of we've been told was "growth" was actually just money-pump inflation.
Yes the wealth effect is not a bad theory, but it's hard to believe it lasted 25 years. Maybe one reason for that is the baby boomer generation which is larger than the other generations and their spending has pulled along the whole economy. Still today in the US you have negative savings rate, massive deficits, a depreciating currency and falling home prices. Where will the money come from now? What happens when inflation will destroy the elder's savings? You also have bleaker prospects for the new generations.