Thursday, December 20, 2007

In this bust are the seeds of the next bubble

In trying to get the economy back up and running after the tech bubble bust, the Fed lowered the interest rates rapidly to try and avoid a deep recession. This led to the real estate and private equity booms. Now that the real estate bust is upon us, the Fed does not seem to be able to do much. Nor does the ECB.

This time around, the Sovereign Wealth Funds of the oil-rich Gulf and the cash-rich Asian countries (China, Singapore), who don't want to put the world's economic engine into recession, are stepping in with their checkbooks and spending away "like teenagers."

This is only going to lead to more reckless behavior from the financial services industry.

Who'll help us recover from the next bust? India? Africa? S. America?

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