What caused 2008 stock market crash?
I’m worried something like that could happen very soon (with the FED stopping QE in june).. could it be?
The crash was caused by reality, the ‘recovery’ was due to inflation.
I doubt that future QEs are priced into the current market to a significant extent. I expect you’ll see more sideways action with a slight turn to the bull due to inflation.
Priced in gold, expect a sluggish bear for the next few years while the polytricksters keep kicking the can .
Sorry but in order to prevent the “next 2008” I need some more specific causes than “reality”!
Thanks anyway for your efforts.
The animal spirits! [/sarcasm]
The stock market and housing crashes were the market correcting itself to the malinvestments that had occurred during the “boom” period. When the Federal Reserve (or any central bank, for that matter) pushes down interest rates by continual injections of liquidity, it causes an overinvestment in capital or capital-intensive industries. However, the key thing is that consumer time preferences haven’t changed. When consumers get their wages they will go out and purchase goods and services or invest in accordance to their time preference, and the market will attempt to correct itself by raising interest rates correspondingly (we are assuming the market rate of interest is higher than the one created by the central bank, seeing as if it had been low the central bank wouldn’t have started credit expansion to begin with). If the central bank does not respond by expanding credit further to keep interest rates depressed, they will rise, revealing the malinvestments that occurred during the boom period. The recession is the unemployment of labor and resources as they are reallocated according to consumer desires. Austrian business cycle theory is a very rich and rewarding area of study, but it is also very complex, as it combines almost every aspect of economics (capital accumulation theory, price signals, etc.) so I can’t claim to be an expert in the subject.
To be quite honest, I don’t think that the Federal Reserve will let it happen. Bernanke is toying with the idea of QE3, and I imagine that he’d rather risk hyperinflation than another recession.
Are you serious with this? You’re a member on the most popular Austrian economics website in the world (and have been for over a month at least), and have the widest, most extensive collection of AE literature and material ever assembled in one place…for free, at your finger tips…and you post something like this?
Why are prices going down a bad thing? In other words, why is it preferable for the ratio of near-term assets like cash to investable assets to be smaller?
The level of high prices in most-all basic materials shows a cornering of the market, fuelled by gov cash injections. This is a malinvestment because it is a shift of easily accessable commodities being used up for immediate causes instead of longer-planed uses. When it is discovered that many of the last spending has been a fraudulent waste, then prices will drop. This would be the preferable action. The alternative and more likely action is for the gov to print trillions of dollars and spend trillions to no real avail in the economy. Prices will go up to the benefit of 30/1 leveraqe bankers, but the average person is much worse off.
I do have a glimpse, but being an investor in the stock market I am asking what were the exact factors of the crash so that I can time the next 2008.. and btw, aren’t we supposed to learn?
So if 2008 was a quick correction caused by past malinvestments, and being malinvestments still rampant, another stock market crash could be near?