Wednesday, January 20, 2010

Drinking Poison to Quench Thrist

By Andy Xie (ex-Asia Chief Economist, Morgan Stanley) in China International Business 
Financial markets didn't wait for the smoke to clear from the Dubai debt crisis before jumping back into the happy days of shorting the dollar and piling into everything else. After the massive government bailouts in the last crisis, the markets don't have any doubt that there would be bailouts the next time. This no-downside psychology is making each market correction shorter and shallower.
The zero-interest rate environment and rapid monetary growth are scaring conservative savers into becoming budding speculators. By threatening to destroy the value of cash and by subsidizing speculation with low interest rates and bailouts, good guys really finish last. It may be better surfing the speculative waves than staying put. One may die in a speculative crash, but holding onto cash when governments are hell-bent on printing money to solve every problem seems like certain death.
The Dubai crisis wasn't even the most important event last month. The confirmation of Ben Bernanke and Obama's announcement of the surge-and-withdraw decision for the Afghan War were both more important. Both indicate that the most important decisions in the world are focused on sustaining existing trends despite catastrophic consequences in the long term.
Read more here

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