China s End of Exuberance

Nevertheless, I must insist upon you sitting down... and controlling your natural exuberance.

It's a strange exuberance about materials, about the world a fascination that I think the world needs quite very much right now.

Markets seem to be driven by stories, as I emphasize in my book Irrational Exuberance. There are stories of great new eras and of looming depressions.

I trust that, even making allowances for a father's exuberance... you do not think I'm in any way being put forward today... as a substitute for Mr. Van Meer.

As far back as I can remember, I was enchanted by the natural beauty of that region and the almost tropical exuberance of the plants and animals that grow there.

So, if you ask Indians whether their governance is marked by widespread corruption, they will answer with gusto yes! But their exuberance biases India s global ranking relative to more empirically minded countries.

But depression in the construction sector and unemployment among its ex workers would be balanced by exuberance in the manufacturing sector, rising prices for manufactured goods, and long hours and high wages for manufacturing workers

Then credit dries up and the economy collapses. This vicious downward spiral for business confidence typically features phishes for example, the victims of Bernard Madoff s Ponzi scheme discovered only after the period of irrational exuberance has ended.

Marcello, as it turns out, is the driver of the number 64 bus, and if you've been on the number 64 bus, you know that it's driven with the same kind of exuberance as Marcello demonstrated on his scooter.

Should such irrational exuberance force the government, willy nilly, to curtail public investment? Does this mean that government must decide which capital flows say into real estate investment, for example are bad, and so must be taxed or otherwise curbed?

Speculative pressures are likely to have been at work, influencing the decisions of OPEC and many others. Although changes in market psychology are difficult to understand, the broad concerns that underlie such episodes of irrational exuberance are almost always clear.

This was the same Greenspan who in 1996 warned of irrational exuberance and, then, as Fed chairman, did nothing to check it. Both the phrase and his lack of action make sense in the light of his (now shattered) intellectual system.

Unfortunately, the parallel between today s US crisis and previous financial crises is not mere hyperbole. The qualitative parallels are obvious banks using off balance loans to finance highly risky ventures, exotic new financial instruments, and excessive exuberance over the promise of new markets.

After 25 years of living without each other, reconciliation will not come immediately. When it does, there is good reason to believe that Iranians will greet their long lost friends with the same friendliness and exuberance that they did sixty years ago in Arak.

Warnings about irrational market exuberance were largely ignored, especially as US consumer spending helped fuel strong growth across the global economy. Robust exports from Japan and Europe supported economic recovery and steadied investor confidence, providing, in turn, further export opportunities for newly industrializing countries, most notably China.

Howard's about this high, and he's round, and he's in his 60s, and he has big huge glasses and thinning grey hair, and he has a kind of wonderful exuberance and vitality, and he has a parrot, and he loves the opera, and he's a great aficionado of medieval history.

In short, because evolution predisposes us to find beautiful those things that help us understand the world correctly, it is no accident that we find the correct laws of nature beautiful. Viewed from this perspective, the apparent beauty of the laws of physics our attraction to their symmetry and exuberance is not surprising.

But, in many cases, inflows are driven by short term factors, fads, and irrational exuberance, which can lead to an overvalued currency, the crowding out of non traditional export sectors or import competing sectors, a loss of competitiveness, and eventually a large current account deficit and thus tighter external constraints on growth.

PARIS The bailout of the financial system was a bizarre moment in economic history, for it benefited those who benefited most from the markets irrational exuberance the bosses of financial firms. Before the crisis hit, however, redistribution of wealth (and the tax and social security payments that make it possible) was considered the biggest obstacle to economic efficiency.

PARIS The bailout of the financial system was a bizarre moment in economic history, for it benefited those who benefited most from the markets irrational exuberance the bosses of financial firms. Before the crisis hit, however, redistribution of wealth (and the tax and social security payments that make it possible) was considered the biggest obstacle to economic efficiency.

Shorting a stock is difficult and risky it is difficult because borrowing stocks is hard to do, and it is risky because shorting has limited upside but infinite downside. In other words, the traditional securities available to investors make it easier to bet in favor of a company than against it, causing prices to be affected more by irrational exuberance than by panics.

International money flows aside from inflows into the US are not yet at levels associated with irrational exuberance, but there is still time for that to happen before interest rates start to rise. This is an alarming prospect, because if there is one lesson from the 1990's, it is that nobody should overestimate the stability of international financial flows.

As I argued last year, in the second edition of my book Irrational Exuberance , the boom is rooted in speculative investment by ordinary homebuyers, fueled substantially by the worldwide perception that capitalism has triumphed, and that all people must look out for themselves by acquiring property. Convinced that private ownership has become essential to smart living, buyers bid up home prices.

You can argue that neither group should have boosted its spending to such a degree that both were subject to irrational exuberance and that someone should have taken away the punchbowl earlier. But you cannot argue that these groups did not increase their spending, and that their increased spending did not pull large numbers of Americans roughly two million in each case into productive and valued employment.

If you believe that the crisis was caused by a shortage of liquidity, we had plenty of models analyzing liquidity shortages and their effects on financial institutions. If you believe that the blame lies with greedy bankers and unthinking investors, lulled by the promise of a government bailout, or with a market driven crazy by irrational exuberance, we had studied all this too, in great detail.

One of India s more astute young commentators, Sreeram Chaulia, captures this heady exuberance well Every milestone in advanced rocket science, he writes, is a shot in the arm for national self confidence, showing that India is headed for global leadership. When the chips are down, or if there is a national calamity, memories of the Mars orbiter blazing a trail in the sky will sustain the faith that the future belongs to India.

Little wonder, then, that we are now witnessing a significant correction in equity, credit, and commodities markets. The irrational exuberance that drove a three month bear market rally in the spring is now giving way to a sober realization among investors that the global recession will not be over until year end, that the recovery will be weak and well below trend, and that the risks of a double dip W shaped recession are rising.