Thursday, March 24, 2011

Extraordinary Speculative Activity Means There is a Bubble Somewhere

Dallas Federal Reserve Bank President Richard W. Fisher said in a speech in Berlin yesterday that the Fed does not need to expand the monetary base any more because right now he sees "Extraordinary Speculative Activity" in our economy. As he put it, "There is a tremendous amount of liquidity sloshing around." That could explain why stock prices have increased like they have since Money Printing 2 was announced. Economist Gary Shilling is seeing what he calls "bubble-like characteristics" in the stock market.

We can maintain nominal spending all we want, but if this spending is on wasteful investment, it will make us poorer, not richer. Due to malinvestment, capital is being consumed, not accumulated. This will make us less productive, not more, and we will enjoy a lower standard of living not higher.

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