Must Reading: ‘Short History of Financial Euphoria’
I’m not sure when he wrote the first edition of his A Short History of Financial Euphoria, but the late economist John Kenneth Galbraith updated it in 1990 following the stock market crash of 1987 and then the savings and loan meltdown of the late 1980s. Those times seem tame compared to what’s transpiring now. Unfortunately, Mr. Galbraith is no longer around to blame our all current problems on Republicans, as he does in this book. (At least in his The Great Crash 1929, he finds plenty of blame to spread around, including to the Federal Reserve.)
I call this book, which is really only a hundred or so pages long and can be read in an hour, must reading because it confirms what should be obvious: Crashes develop because of greed and speculation. What may not be obvious–in fact, I know it’s not that obvious to the general publi–is that greed and speculation arise only after the government fans the flames of, well, greed and speculation by…
PRINTING TOO MUCH DAMN MONEY.
When you read the book, you’ll see how our troubles all began with the rise of capitalistic economies when governments figured out they could just print money without any basis in reality–paper money, money by fiat, sovereign money, call it what you want, but it’s not redeemable on any market for anything else of fungible value except…more paper money, or gold if you can acquire it (U.S. law now restricts its possession).
The first modern boom-and-bust cycle, or bubble, was the Tulip craze in 17th-century Holland, and bubbles continued (and continue) to plague the Western World through the 21st century. The book recounts several of them in U.S. history, including a colonial meltdown when a pair of shoes could cost $5,000–useless paper dollars, that is.
In every bubble, when the boom is on, the financial leaders are all deemed geniuses. When the fall comes, they are suddenly villains. The people who invested in these bubblicious financial instruments–the you’s and I’s of the world–suddenly forget that we were just as greedy, and none of the boom or bust could’ve happened without us.
Galbraith rightly concludes:
"Yet beyond a better perception of the speculative tendency and process itself, there probably is not a great deal that can be done [to prevent future bubbles]. Regulation outlawing financial incredulity or mass euphoria is not a practical possibility."
Tell that to the Obamaites, who at this moment, while crying regulation, are printing money by the supertanker-full to stoke our next great bubble.