Wednesday 15 October 2008

Pic of the day: Amazingly, the same laws generally apply in the kitchen and the stock exchange.

Ups and downs

Asian stock markets stall after 2-day rally (Associated Press).

This is, unfortunately but also somewhat amusingly, typical of the month. Occasionally governments do something grand, and the stock markets rally. They rise as much in a day as they one time did in a week, as everyone wants in on the upturn. And then gravity reasserts itself, and the markets fall almost as fast. Up, down. Up, down.

Anyway, the article ignores the elephant in the room. Namely that so far, government simply substitutes their money for the fantasy money, seeking to bring the economy as fast as possible back to where it was. Which was a very wrong place and clearly unsustainable.

The problem, to put it simply, was that corporations were allowed to print money. Even that is not a disaster, but then two things went wrong: The system was not transparent enough, but allowed skeletons to be hidden in the cupboards, metaphorically speaking. And people really, really wanted to believe in cheap money, so the fantasy money was accepted eagerly - or greedily - and mixed with the "real" money. This is just human nature, really. It is not really different from when we eat fatty sausages or cakes even though we know it is dangerous for our heart. We really hope and want that the fat won't harm us, at least for a long, long time. Because we really want the cakes now. And it's the same with the money. We really want it now, so we keep believing in the fantasy money until the "infarct" comes.

I am also amused by the Australian PM talking about "extreme capitalism". Australia was simply lucky to brake a bit before the global bubble burst. Take a look at this MSN article from 1986 where a person with some foresight says: "Check what's going on in Australia and could soon happen here."
When someone crashes, everybody else knows how to drive.