The stock market soared yesterday based, apparently, on two things:
First that Bernanke said that he might, at some point, be willing for the Fed to do another round of "quantative easing." He did not say that would happen, and there is no real evidence that it would have any measurable effect on the economy if it did happen, but his mere mention that it might happen triggered a frenzy of stock buying.
Second is that China cut its interest rate. That's actually bad news, because it means their economy is slowing more than was previously thought, but the people with high foreheads on Wall Street read it to mean that China's economy will now take of like a rocket. Just like ours has done due to our low interest rates.
And so Wall Street had "its best day all year," based on absolute bullshit.
Free market economic theory, the stuff pioneered by Adam Smith & trumpeted by the political right in America, is predicated on entrepreneurial & investor types being "rational actors". They must be rational or they couldn't possibly make money. The theory says so!
ReplyDeleteOf course, the only part of economics (as a science) that has any real, consistent, repeated evidence is that humans are not particularly rational. And that investors at least (as opposed to start-up entrepreneurs) are particularly *irrational* -- witness Enron & B=Bernie Maddof. So, also, Wall Street last Thursday.