Thursday, October 22, 2009

Another bust coming

Paul Krugman is wrong, writes Peter Cooper; the economy does not need more stimulus packages, it needs to reduce debt. With the

Dow Jones at 10,000 points [you] have a similar tale of an outstanding rebound in equities against a deteriorating economic background, and the worst recession since the 1930s. What is going on?

Even the most casual analysis of cause and effect reveals that the obvious must be true: government interventions since the crash of last autumn have produced some of the most monstrous valuation bubbles in history. Cheap money is the devil in the system yet again. . . .

The Dow Jones is on a trailing price-to-earnings ratio of 140, considerably higher than in the dot-com boom. Well, we know what followed – the dot-com crash.

For Professor Paul Krugman to publicly call for additional stimulus packages is bordering on insanity. Current stock market valuations show that governments can not bend the laws of economics without consequences. They are indeed fueling up the next big bust.

The need is to reduce debt in our economic system to a level that does not produce such unsustainable asset price bubbles, or at least something containable. The system that was saved last autumn is the problem, not the solution.

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