Your Daily Fear

I found this chart which shows total market debt as a percentage of Gross Domestic Product, and it's one to ponder. (WARNING: Do not go to the main Rense.com site unless you have a high tolerance to anti-Semitic and conspiracy stuff. Some of the items could be very offensive.) It purports to show that the current stock market is a parallel of the boom market just prior to the Crash of 1929.

I did some Googling around and found out that the chart is a cleaned up version of the one found here, on the Gabelli Mather Fund site. The page describes the thinking of one Henry Van der Eb, CFA.

In the autumn of 1998, the U.S. Federal Reserve bailed out a teetering global economy, a collapsing U.S. stock market, and a prominent hedge fund, with three successive reductions in U.S. interest rates. The spreading financial crises were stopped, but the unintended consequence of the aggressive rate cuts was a quick return to stock mania psychology, a revitalized stock market bubble (Charts 1, 2 & 3), and rising residential real estate prices.

The rippling "wealth effect" from excessive stock and real estate valuations has overstimulated U.S. consumer spending and pushed the savings rate below zero. This has shifted the Fed¹s focus to an "inflation alert" with concerns over labor shortages, rising wages, commodity inflation, and slowing productivity. As a result, the Federal Open Market Committee raised short-term interest rates on June 30th to prevent the inflation on Wall Street from moving to Main Street. Additional rate increases are expected unless potential inflation is quickly defused by an economic slowdown.

Mr. Greenspan is now center stage with the most difficult balancing act of his career. By gradually raising interest rates, he is attempting to gently deflate the largest stock market balloon in financial history in order to cool consumer spending, slow the economy and prevent inflationary pressures from building. Complicating this task is a burgeoning U.S. trade deficit, a weak dollar, and Y2K uncertainties. Only twice this century has a central bank tried to restrain stock market speculation that had become a national obsession. In both cases, the U.S. in 1929 and Japan in 1989, interest rates were raised, stocks topped and no one worried about inflation for a long time.

We know what happened next, of course, but here we are five years on and the economy seems to be rebounding, although the dollar is at historic low levels internationally.

Not sure at all about this, but that chart is something to see.