In his latest New York Times op-ed entitled "This Age of Bubbles" (http://www.nytimes.com/2013/08/23/opinion/krugman-this-age-of-bubbles.html?_r=0), Paul Krugman considers the nature of financial bubbles. Krugman concludes:
"In short, the main lesson of this age of bubbles — a lesson that India, Brazil, and others are learning once again — is that when the financial industry is set loose to do its thing, it lurches from crisis to crisis."
As anyone who reads this blog knows, I have serious issues with the greed and manipulative practices of an unfettered financial industry. One need only examine my routine diatribes aimed at restoring the "Uptick Rule" to understand how troubled I am by financial industry excesses (see, most recently: http://jgcaesarea.blogspot.co.il/2013/08/maureen-dowd-summers-of-our-discontent.html).
But is only the financial industry to blame for these crises? Could it also be that retired persons currently have no secure place to invest their savings, given that bank deposits pay so little interest today? Low rates on bank deposits do not result - at least directly - from financial industry excesses, but rather from Federal Reserve efforts to reduce interest rates to stimulate the economy.
But as long as we're talking about "bubbles," why is there no mention by Krugman of US stock markets?
Let's face it: The US economy is still rotten. As reported by Bernice Napach in an article entitled "Income Stats Suggest American Dream Is Dead" (http://finance.yahoo.com/blogs/daily-ticker/income-stats-suggest-american-dream-dead-161855152.html):
"The Great Recession officially ended in June 2009, but the U.S. economy still has not fully recovered. While existing home sales have returned to their June 2009 level and the current unemployment rate of 7.4% is far below the June 2009 rate of 9.5%, less people are participating in the work force and incomes are decisively lower.
A new report out Thursday from Sentier Research found that the median annual household income of Americans was $52,100 in June, after adjusting for inflation. That's 4.4% below the level in December 2009.
Even more dramatic, the median income is 6.1% lower than the level in December 2007, when the recession began, and 7.2% lower than January 2000. For many Americans incomes aren’t just stagnant, they’re falling along with their purchasing power and standard of living."
So why are US stock markets so high if things are so bad? The answer is simple: There is no secure place to park your money and receive a reasonable rate of return.
Yes, current US stock market prices are also a bubble, which ultimately must burst. Regrettably, they are not a reflection of an upturn in the economy.
