There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.
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"A Crash Course for Central Bankers," Foreign Policy (September/October 2000)Ben Bernanke
The most serious problems lie in the financial sphere, where the economy’s debt overhead has grown more rapidly than the ‘real’ economy’s ability to carry this debt. ... The essence of the global financial bubble is that savings are diverted to inflate the stock market, bond market and real estate prices rather than to build new factories and employ more labor. - 1998
Michael (economist) Hudson
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Warren Buffett
One of the first things they teach stockbrokers is to stay out of the stock market. Brokers make their pile from selling advice, and from commissions on stock transactions. They can't predict the market, and few risk their own money. They, at least, only affect their clients' fortunes. Economists, though, can ruin the lot of us with their advice — yet if no science can predict a relatively closed system like the stock market, how the devil are you going to 'fine tune' something a large as the American economy? I'd think it arrogant to try; as arrogant as the man with three illiterate drug-addicted spoiled brats writing a book on parenting.
Jerry Pournelle
With joint-stock corporations, investors can place bets on the success of many different companies, without having to play a central management role in any one of them. This allows investors to diversify their financial holdings. It also allows them to capture profits on their investments, without having to get involved in the dirty, troublesome business of actually running a company.
Jim Stanford
...we need to recognise that the entire information sector—from music to newspapers to telecoms to internet to semiconductors and anything in-between—has become subject to a gigantic market failure in slow motion. A market failure exists when market prices cannot reach a self-sustaining equilibrium. The market failure of the entire information sector is one of the fundamental trends of our time, with far-reaching long-term effects, and it is happening right in front of our eyes.
Eli Noam
Bernanke, Ben
Bernanos, Georges
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