Mrs. Moneypenny then explained that a friend of hers wanted to leave her husband because she found him irritating and because he hardly ever had sex with her. However, “if irritation with one’s husband and a lack of sex were reason enough to walk out, the divorce rate would go through the roof,” she wrote. She told her friend to “hang in there”, because if she went back to the open market and found another husband, how would she know that he would be less irritating and would want to have more sex? “[M]arriage is frequently embarked upon when you are young and naïve and don’t weigh the risks,” she wrote. “But there is no regulator or government that will save you from the pain if it goes wrong. And neither should there be. Any more than for people who take out 110% mortgages.”

Well put! Governments and their agencies around the world – not just in the US – have created asset bubbles by keeping interest rates artificially low and through lax regulatory oversight, which has encouraged the purchase of all sorts of assets with high leverage. These governments should not now compound their earlier mistakes by supporting asset markets with even lower interest rates and fiscal measures in order to prevent the market mechanism from clearing properly at the lower prices. After all, and as Mrs. Moneypenny suggests, there is usually no – or little – mention in the discussions of markets that “inflated asset markets” are making it expensive and difficult for first-time buyers to acquire assets without high leverage. In this respect,

I should like to point out that throughout the 1970s and even most of the 1980s, less than 30 hours of work (total private hourly earnings of production workers) were required to buy one S&P 500. Now, however, despite some decline in this number from its peak in 2000, it requires 78 hours of work to buy one S&P 500. I suppose that, over time, the S&P 500 and other asset markets will adjust to the downside and again become more affordable, or that hourly earnings will increase significantly (inflation).

I would also like to make the point that if the government and its agencies support the equity and residential property markets, a case could be made for it also to support, in future, the prices of commodities, commercial properties, and art and collectibles. In fact, I am concerned that investors haven’t paid sufficient attention to the problems that could arise should these markets decline meaningfully.

Regards,

Dr. Marc Faber
for The Daily Reckoning

Editor’s Note: Dr. Marc Faber is the editor of The Gloom, Boom and Doom Report and author of Tomorrow’s Gold, one of the best investment books on the market.

Source: National Political Brownout, Part II

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Pages: 1 2