http://finance.yahoo.com/tech-ticker/ar ... IA,TLT,UDN
A controversial figure in finance, Peter Schiff, believes we have a false or fake economy as a result of too much consumption as the driver and the resulting RE bubble. I too believe this. I also believe that the stock market is false or fake in that it is a bubble in the works since two decades ago.
I believe that the fear of the social security system being an unsustainable ponzi scheme and the boomers coming into their peak earning years in the early eighties caused a desire to invest that was real, however, the advent of government regulation that allowed the avoidance of taxes in investments (401k) induced a bit of a bubble that grew as the investing fever took over after the crash of 1987.
If you examine the volume
of the stock market, the rise is astronomical. Both a rise in domestic savings in the early years and a rise in foreign investment in the late eighties and early nineties gave birth to speculative fever during the techie years. This too is artificial as the collective value of the Dow has exceeded its regression path when adjusted for inflation. In other words it's way overvalued even at these beaten up levels. Personally I think it can fall another 25% and may have to do that in order to achieve balance and its proper valuation.
Peter Schiff believes the economy is false in that we have borrowed to in order to spend. This is a theme we have discussed on this board recently. I think he's right and our creditors are facing a shift in strategy because our spending in their economies has created wealth for them while depleting ours. No longer will they need the US to the degree they have relied on us in the past. This is not to say the US is doomed but there is a definite paradigm shift in process. This process will be painful but more painful if the stimulus bill is passed. It will only add borrowing and spending to the causes of our problem: borrowing and spending.