Markets are heading down fast today (some are even using the word “panic”), but in his recent Mises Daily article, Brendan Brown noted that current trends suggest that the current boom may still have some life in it:
In the episode of the mid-2000s, the first quakes in the credit markets during summer 2007 did not prevent a further build-up of speculation in equity markets and a soaring of speculative temperatures in winter 2007–08 and spring 2008 in commodity markets, especially oil.
Of course, all booms look different, and oil isn’t exactly peaking right now. In fact, it’s at a 5-year low. But as Thorsten Polleit has long noted, the fed has a big bag of tricks.
So, today’s crashing markets may not prove that anything in particular is here in the very short term. Markets are extremely complex, and it’s difficult to predict what new developments may emerge to push out the most severe phase of the correction into the future. After all, those of us who worked in housing in 2007 saw housing prices start to quickly head down in mid-2007, but it wasn’t until the fall of 2008 (more than a year later) that the troubles became impossible to ignore for the general public.
If we look for other ambiguous market signals, we notice that the market went nowhere during 2005, making the economy look very fragile. But then it went up for two solid years after that. In early 2008, there was a swift drop, but the market hung on for six more months after that. Although were were technically in recession at that point, since the 2007-2009 recession began in December 2007.
The difference, this time, though, is that, unlike 2007 and 2008, when interest rates were at somewhat “normal” rates near 5 percent, interest rates — this time around — are already at zero. So what’s the fed’s plan to keep the bubble going this time?
