Fw: What Do Stock Market BubblesTell Us?

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Further to an earlier posting, my following e-mail message of today's date may be of interest to PKT Forum participants:

 

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1.  A Stock Market Bubble (SMB) is reality mocking mainstream and monetarist teaching that Money is a Factor of Production. 

 

2.  Now - as before - reality will not be denied.

 

3.  As before, when the current SMB is history, two options will present themselves:

 

(i)  Make believe that the next time, for sure, reality will be denied; or

 

(ii)  Adjust the economy's legal, financial, and fiscal structure to accommodate reality.

 

In a lecture given in Iceland in 1982, I suggested with respect to (ii) that longer-term financial stability would be served by partial payment of employee compensation in the form of direct equity ownership in the businesses that employed them. 

 

Over time, and with appropriate supporting structural reforms, this form of personal "saving" would crowd out the fly-by-night "capital" which "bubbled" - before "bursting" - the erstwhile Asian "tiger" economies and that of Russia before coming home to stoke the current SMB.

 

Gunnar