Cassidy seems to be a Keynesian. Although sentences like "After eleven years on the job, the Fed chairman is almost universally lauded for his stewartship of the American economy, and that praise is not undeserved" make me wonder what he's up to.
Cassidy thinks the paralles between today and 1929 are "striking." Even Milton Friedman agrees: "If anything, I suspect there is more of a bubble in today's market than there was in 1929." The main difference being the amount of margin debt. 20% then versus 1% now, largely a result of New Deal reforms. But, Cassidy suggests, there wasn't much leverage in '87 either. "Various institutional reforms have been introduced since 1987, but it isn't clear what impact they would have amid large-scale panic selling." If the market crashes, Cassidy hopes the Fed will do what it did in '87. "After the Dow fell by 508 points on October 19, 1987, the Fed flooded the financial markets with money, and this injection of liquidity prevented a major collapse. The economy stalled slightly, but didn't go into recession."
The cute thing about Cassidy is that he'll let slip the idea that maybe we should care about the distribution of wealth: "One reason [for faster than expected growth] was the stock market's rise, which has added about $12.5 trillion to total household wealth since the end of 1994. (If it had been divided equally--it wasn't, of course--this asset-price inflation would have added about $125,000 to the paper wealth of each American household.)"
Also, he'll raise issues that point in the direction of political economy and class struggle. For instance, "A week later, some new figures showed that the employment cost index, which Greenspan considers a key measure of inflationary pressure, rose by 0.9 per cent in the second quarter. This may not sound like much, but during the last twelve months the index has risen by 3.5 per cent, compared with 2.8 per cent in the previous year--an acceleration that is consistent with the view that the economy is operating beyond its sustainable level."
You have to laud him for attempting to explain economics to non-economists, but he's no Henwood. My crystal ball says the crash will be set off by one of two events: a rise in interest rates or the resignation of Rubin. Unlike the name-calling Mark Jones, I don't think the crash will be followed by a descent into depression and all-around economic hell, like what's happening in Russia and Asia.
Peter
When Black Friday comes I'll stand down by the door And catch the grey men When they dive from the fourteenth floor When Black Friday comes I'll collect everything I'm owed And before my friends find out I'll be on the road When Black Friday falls you know it's got to be Don't let it fall on me
When Black Friday comes
I'll fly down to Muswellbrook
Gonna strike all the big red words
>From my little black book
Gonna do just what I please
Gonna wear no socks and shoes
With nothing to do
But feed all the Kangaroos
When Black Friday comes I'll be on that hill
You know I will
When Black Friday comes I'm gonna dig myself a hole Gonna lay down in it' Til I satisfy my soul Gonna let the world pass by me The Archbishop gonna sanctify me And if he don't come across I'm gonna let it roll When Black Friday comes I'm gonna stake my claim I guess I'll change my name.
--Steely Dan, "Black Friday" -------------- next part -------------- An HTML attachment was scrubbed... URL: <../attachments/19980814/5878ea09/attachment.htm>