David Braunstein

The Real Crisis: Collapsing Capital Accumulation Process

firstproman, I disagree that we are sowing the seeds of the next bubble excess. Those days are over for many years because everyone is overleveraged now: homeowners, businesses, hedgefunds, nations, municipalities. The era of low interest rates produced over pricing and stock and asset bubbles. The next ten years will be marked by delevering and no amount of government intervenion is likely to change that. The government has two choices: (1) do nothing and let our capital system restructure the system through bankruptcies and foreclosures, or (2) pump more money into the system by printing it. Of course there is a third choice which is a mixture of (1) and (2). Since printing money hurts older americans and those who are unemployed and underemployed, that option hurts the most people as inflation cuts them to the bone. Therefore, a mixture is most likely. There will be no inflation or deflation if the governemt gets it right. Some asset prices will deflate; some will inflate. There will be winners and losers. Stock prices are likely to remain stable after reaching an equalibrium which is somewhere between 600 and 700 on the S&P 500 Index. From there it will rise, but most likely by only 5% to 6% annually for many years to come. Long-term interest rates will peak at 3% for the same number of years. Capitalism will coexist with socialism.


On Feb 09 04:28 PM firstproman wrote:

> Thank you for the fair response Rakesh. I agree with this briefer
> assertion. Left leaning thinkers have commonly argued that “state
> capitalism” is the natural next step in development of economies
> post “private capitalism”. In the west we are too often completely
> blind to this school of thinkers.
> Talking about our markets:
> I agree with your article that the current market collapse (equities,
> commodities, real estate) is largely due to the leverage excesses
> caused by Greenspan’s monetary expansion i.e. the last boom. I differ
> with you on what will happen next. I believe we are currently witnesses
> the birth of the Bernanke expansion and eventual bubble. A major
> question for investors is “which asset class or classes will experience
> exaggerated price increases?” even if only “nominal dollar” price
> increases.
> The market is infatuated with “booms”. We have so much cash (private
> capital) sitting on the sidelines waiting for the next drunken “price
> party” that the next “recovery” will become a self fulfilling prophesy.
> The Obamaniks will ensure this happens.
> Talking about world development in general:
> Most of the world is now trying to consume more i.e. improve living
> standards (development). At Davos even Putin, after condemning the
> U.S. for the current global economic reversal rejected a return to
> completely controlled economies OR protectionism (yes, yes, yes,
> self serving) . The current contraction may indeed get worse before
> it gets better but our central banks and governments are already
> sowing the seeds for the next boom and eventual bust cycle. I’ll
> be very surprised if nominal prices of one or more of the “hard”
> asset classes (equities, commodities) aren’t surging higher before
> 2010 ends!

Emerging Markets: Beware of the 'Head-in-the-Sand' Strategy

Wonderfully written! I enjoy your posts. After you make your fortune shorting stocks, please give us your prescription for the current crisis. The world needs the likes of you to help us all.