This page has been archived and commenting is disabled.
Greenspan's "Irrational Exuberance" Warning In Context
As the marginal investing bot continues to invest his marginal leveraged dollar-on-the-sideline on an equity market that, as Janet Yellen has explained to the poor, will create a "wealth effect" to sustain everyone through rainy days and retirement, we thought some context worthwhile. On December 5th 1996, Alan Greenspan - upon the recognition that equity market capitalization has bubbled to over 100% of nominal GDP - opined that investors had succumbed to "irrational exuberance." Since then, that 'exuberance' has become increasingly rational as the Fed pulls all its monetary-base expanding, deficit-funding, asset-purchases to keep the American Dream alive for a select (and shrinking) few...
Irational-er and Irrational-er...
But adjusted for the reality of a fiat world, things look a little different since the dot-com collapse inspired The Fed...
As is clear - since the financial crisis, stocks have become completely dependent upon The Fed
As The Monetary stock and flow indicate...
And relative to debt... stocks have gone nowherefor 90 years...
* * *
"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade..."
"How" indeed, Alan, how indeed?
- 10094 reads
- Printer-friendly version
- Send to friend
- advertisements -








It's a slo-mo train wreck. It's hard to jump off at 40 miles an hour but it is what it is.
<-- Irrational greed of bankster class
<-- Exuberance of citizenry (WTF is meaning "exhuberance"...?!)
I think its kinda like when you and your lady start participating in some foreplay, and you jizz just after it starts. Not for certain, but they sound similar.?.?
I want to see Market Cap over Fed's Net Worth. And don't forget; Every banknote issued is a *Liability* !!
That senile old fucker should get no press period! Keep anything to do with Greenspan off these pages!
His ass should be in jail. Why is it the likes of these old fuckers dont die? Soros greenspan jimmy carter george h bush wtf we know they excessed in life but they live the high life and if it were us we would be with madoff. I bet that is one pissed off guy,madoff, he is a saint in comparison
Madoff aspired to be Wall Street's bitch in jail. Madoff was not smart
like Greenspan, Soros, et cetera. Madoff was just a common criminal
when all is said and done. Greenspan was an extra-ordinary criminal
with plausible deniability 'the flaw' as a worldview. Soros is just a garden variety sociopath like George Bush. Carter is a religious zealot
that builds houses for poor Americans and cannot possibly be classified in the same class of criminals as Bush, Greenspan, and Madoff.
voodoo economics
I wonder if Greenspan still has any "irrational exuberance" left for Andrea Mitchell? I wonder if she cares?
That very last chart is intriguing. I always kind of thought in the back of my mind that stock market gains adjusted for inflation would end up being a washout over the long term, but the fact that stocks divided by debt would be a wash after 90 years is in some ways even more interesting. This proves that industrial/social expansion in the 20th century has always been financed by borrowing from the future; the growth/debt model has been the definitive economic fact of the times. Now that the growth side of that relation has become untenable, everything about the model we've used for the last four generations is starting to shake loose and fall apart.
Not that this is news to anyone here. It's just one of those facts which, despite being undeniably true, is easy to forget and thus ever-surprising.
Banskter class is had good thing going. Provide citizenry access to financial instrument and operation, citizenry is allow remote investment in economy. Too bad for greed because is end of fun for EVERYONE, including copper miner in Minsk. Remember lesson can shave sheep for all time, but can only skin sheep once.
Very well opined.
Thanks.
Exactly, there has been essentially no new wealth created. It is all an illusion. Would love to see additional charts to include the State debts, consumer debt, student loans, etc., compared to total stock market capitalization. Bottom line will be the same answer....
The more I study it, the more I understand the role of oil in our great expansion, and might I add, privileged lifestyle.
Oil is concentrated energy. Stored in a uniquely efficient form. Sunlight, stored and concentrated over millions, if not 100s of millions of years. And we have had the benefit of using it to our advantage in the span of 100 years. A most precious resource, indeed. Not to sound too dorky about it.
Technology may help us in the future, I agree. But nothing, NOTHING we do can replace the time component of oil.
It has been calculated that the "Human Labor Value" in a barrel of oil, at today's wages, is on the order of $500,000.00!
And it trades at $100.00, more or less!
Wow!, seems like we have been getting off pretty easy, the last 75-100 years. Put a gallon of gas in your car, drive it until it stops, and push it back to the starting point.that is a lot of " work" for $3-$4.00!
And it is getting harder and more costly to extract the oil remaining. True, there is probably plenty left. But at what cost, in dollars, resources and environmental terms?
Alternatives are not free. Solar panels require resources, and the payback is no where as good as oil. Same with wind,hydro and nuclear. Ethanol requires as much or more input,in diesel,fertilizer and water, than what comes out.Electric vehicles just shift the source. And as efficiency goes up, so does demand, offsetting and usually negating the gains.
And the same goes for other resources and metals. The "easy" stuff has been gathered.
When this clicks, it does not bode well.
1996 = Irrational Exuberance
2014 = HyperEuphoric Exponentialism
anyone really think the .010 don't have their getaway plans well honed?
They also suffer from cog. diss.,so no.
<- reversion to the mean via numerator (Mkt cap falling)
<- reversion to the mena via denominator (GDP skyrocketing)
It's all about Wall Street and Washington D.C. - Mordor and Isengard of the 21st Century.