niederbomb wrote:TheOcho wrote:niederbomb wrote:I think the only concerns regarding the state of the economy are the current uprisings in North Africa/Middle East.
Not to be contrarian, but there are plenty of economists who will argue our economic "recovery" has been entirely artificial. There has been no fundamental change in the capital structure of the economy and when stimulus stops and interest rates are allowed to return to market levels we will have another housing-like crash in a different sector of the economy. I sure hope I'm wrong, but it's a real possibility.
What other sector of the economy are we talking about? Also, a bunch of big banks went bust while others were forced to adapt or were bailed out. The foreclosure crisis is not getting worse, and it's reasonable to say that any financial company who's weathered it thus far is probably going to survive long term. So, in a way, the fundamentals of the economy have changed, and maybe the capital structure for the remaining companies is ok.
Also, a lot of the stimulus is already gone, and most of it went to special interest groups anyway. I'm not sure current growth is solely or even significantly due to stimulus spending. We might still be in a recession for a long time to come; however, since we have thus far escaped the inflation of the 70's, and Chinese exports are weakening by the day, I think it's fair to say that the market will broadly get better between now and when I do OCI in 2012 or 2013.
I can't predict where the bubble is being created.
Edit: And inflation isn't just a general rise in prices. Inflation is an increase in the money supply that leads to a general rise in prices. The money supply can increase and prices can stay the same if real productivity increases. You won't see a price increase, but prices will be higher than what they would have been in the absence of creating more money.
When talking about the capital structure, I'm talking about the processes businesses undertake to bring goods to market. When interest rates decrease (in an ideal world), this is a signal to business that they can invest in long-term projects that will be profitable later because consumers have actually released those resources by increasing saving. Artificially lowering interest rates by creating more money manipulates the capital structure and the "malinvestment" isn't exposed until interest rates are allowed to rise near actual market levels.
Sorry for getting off topic.