Tuesday, September 27, 2011

Stock Markets Have A Mood Disorder

There are so many ways that capitalism is absolutely irrational (not to mention inefficient at allocating resources) - the fact that the USA spends $1 trillion on "defence" while children die from lack of clean drinking around the world (or while growing numbers of American children live in poverty) is one that comes to mind. Or, how about the fact that $4 trillion was spent bailing out US banks that caused the near-meltdown of the global economy because of their barely legal and certainly unethical lending and debt packaging practices. This latter point is worth noting since it is the primary immediate cause of the present round of sovereign debt crises in Europe and the USA.

But those weren't the examples that came immediately to my head when I read this article in the Globe & Mail this morning. It seems that global stock markets are jumping for joy over a European plan to solve the Greek debt crisis. Except that there is no plan. All that European leaders have said is that there will be a plan. I also have a plan to make a million dollars this year and invite you to invest in me, in return you can stay at my mansion any time you like. You think I'm kidding?
Investor sentiment improved after European ministers told a meeting of global finance leaders in Washington over the weekend that they would take bolder and more decisive steps to pull Greece back from the brink of bankruptcy.
This, of course, has been typical behaviour over the last several months as we have gone from the flavour of the week, economy-saving plan to depression over the fact that the plan turns out to be voodoo or politically impossible or politically impossible voodoo (with no offense to voodoo, which has considerably more grounding in science than most economics). The real source of this gyrating sentiment is not the mental health of investors or their automatic betting, I mean investing, programs. The real source is that nobody knows what to do or what will work. Obama preaches stimulus spending. The Republicans preach restraint and austerity. Britain preaches austerity. Leading economists and bankers preach stimulus. Harper, never one to miss and opportunity to show leadership, preaches both austerity and stimulus, depending on whether you lead a government north of Italy or south.

I don't think anyone will accuse me of being a prophet when I say that within a week the stock markets will again be racing for the drain. After all, they have nothing to do with reason, planning or the real economy per se. They are nothing more than a high stakes casino where the odds are rigged against the little guy so that corporations and the rich can have one more way to fleece to mooks and line their profits. Not so different from the lottery, actually. The trouble for the big players is that they are looking increasingly like they might be hoisted on their own greedy petard. And that makes them sad. They won't be happy again until we are forced to pay for their gambling addiction and manic binges of irrational investment priorities.

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