Bubble bubble

Article Abstract:

Yale economics professor, Robert Shiller, argues that Wall Street is overvalued, and returns to investors will drop in the 10 years from 2000 compared to the 10 previous years. He sees structural and cultural factors as contributing to the rise in stock prices, and finds parallels between modern trends and those of the 1960s and 1920s. He has a strong case for arguing that stock markets can give the wrong signals, though he does not pay enough attention to arguments that reassessment of risk, and increases in productivity may mean that stocks are not overvalued.

Speculation

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Trapped by the bubble

Article Abstract:

There is a danger of a bubble economy developing in the US, and the continued rise in US stock prices since these fears initially appeared does not undermine the case. Bubbles may develop over some time, and larger bubbles create more problems when they deflate. Companies and households are borrowing large amounts and the growth of the money supply has been rapid. The US is also developing a current account deficit of 4% of gross domestic product. Asset price inflation should not be ignored since they can encourage excess borrowing. The Federal Reserve appear prepared to cut interest rates when stock prices fall but not raise rates if stock prices rise, which can lead investors to assume excessive risk.

Interest Rates, Cover Story, United States. Federal Reserve Board

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Hubble, bubble, asset-price trouble

Article Abstract:

There is a danger that asset-price inflation could lead to excessive borrowing and investors taking on too much risk. US stock prices appear to be overvalued, despite explanations from people seeking to justify higher rates in terms of productivity increases and the like. There were similar beliefs before the stock price crash of 1929. Real estate prices are also rising, as is money supply growth. There are reasons for central banks intervening to prevent a major bubble developing which could cause serious problems when it deflates.

Prices, Inflation (Finance), Central banks, Inflation (Economics)

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