I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.
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?
Such caution seems especially warranted with regard to the sharp rise in equity prices during the past two years. These gains have obviously raised questions of sustainability.
Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities.
People dont realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but thats as far as we go. And Ive had a very successful career as a forecaster, starting in 1948 forward.
The very nature of finance is that it cannot be profitable unless it is significantly leveraged… and as long as there is debt, there can be failure and contagion.
