The Economic Crisis No One Saw Coming: A Convenient Untruth
By Elliott Wave International
The single most convenient untruth about the 2008 (and counting) financial crisis is that it was unforeseen. For two years policymakers have insisted “There was no way to know ahead of time” that the liquidity boom would come to a screeching halt. Yet even as the mainstream authorities failed to detect the economic earthquake moving below their own feet, somebody did “notice” well in advance. That person was EWI’s Bob Prechter. Read more.
2:35pm
My BA long position doing great, I’m putting a trailing stop on it.. let it run! On Alerts & Analytics, we bought a 3% position in YONG into earnings (it’s smaller than a usual position). YONG reports on teh 12th.
2:30pm
AMZN 1/5/10 minute is doing really well a breakout of $129 is very strong for AMZN (and it’s getting it right now for the 2nd time today). If it breaks $130, i think AMZN jumps 3-4% easily. Here’s the 1 minute:
2:18pm
Fed downgrades the economy and jobs. They decided to keep the balance sheet constant (that means they have to add a little bit every month). This is technically slightly more bearish than what most people were thinking but market did lift up a bit (not what i expected).
1:30pm
As we await the FED decision here, the SPY is tanking now, breaking down the ascending support we’ve had for 10 days on the ascending wedge i drew earlier today (chart below).
12:17pm – Poll of the day!
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12:14pm
Same inverse H&S applies for BA if it breaks 68.20. I will go long the stock again for at least an intraday trade if not more:
12:10pm
Potential 1 minute inverse H&S formation on AAPL, a break of 259.15 is a great entry for an intraday long position.
10:52am
My thoughts on the questions below:
1. I believe the FED will be more dovish, there is no doubt about it in my mind, that after Bernanke’s last statement, the FED cannot be optimistic and has to be more cautious and maybe even use the word “deteriorated” in their statement. That said, I believe they’ll still wait a month or two before they react in any way.
2. I still think market will sell on news. But we will see, if we sell below $111, I’ll start looking for good shorts. If the FED actually does react to the weakening economy, the market will plunge, but i doubt that will happen.
10:30am
Stopped out of BA long Calls, with a 25% loss (this is an options trade), will only trade some more after FOMC meeting. Of course, in our alerts & analytics we’re positioning both shorts and longs in front of FOMC so we can make some profit at least on one side, and stop out the rest.
9:52am
Since i’m using options for BA, i’m holding on to BA even if it is at 67.80 right now until the 10 minute candles close. I want to see if it finds support around the 68 mark.
9:49am
The SPY over the last few weeks has been trading in an ascending wedge. While it is a bearish pattern, you always have to wait for it to break and then wait for a horizontal support right below to break before you become bearish (just to be more risk averse). In this case, the wedge is already breaking support, but the horizontal support below is 111. Here’s a 4 hour chart of the SPY:
9:44am
Market gets hit at the open as people would rather not play the FOMC meeting today. My answers to the questions below to come at 10:30am. Also my stop on BA is $67.80 for those who were wondering. On the SPY, there is 111.4 as support, then 111, which is incredibly tough to break and then 109.85-110.00 (also very tough).
12:24am
Everybody is waiting to see what will happen with FOMC at 2:15pm. But there are two questions that need to be answered, and i want your opinions on this:
1. Is the FED going to be more bearish about the economy and are they planning to stimulate the economy some more or at least not continue their exit plan
2. If the FED sounds more dovish and do say more packages are needed to revive the economy, does the stock market go up or down?
I’ll let you know my answer by 11am!
In other news, i bought some BA calls yesterday, i still believe the stock is strong as it’s forming higher highs and higher lows, the clear resistance is $70. If you don’t want to take any risk, buy it only after 70, i bought it a little prematurely, but if it is up before FOMC meeting i’ll take them off the table until we see what happens. Otherwise, i might take half off the table before FOMC.
I am surprised to see the futures as down as they are. I want to be an ultrabear, and I am long-term, but not short-term. This market keeps getting propped up. I think the Fed is going to pump up the economy and the market will rally.
I agree if they become bearish and continue thier exit plan market dives immediately. They will keep pumping and manipulating as they have been doing the last 2 years in hopes of a recovery. Sad thing is it will NOT recover without jobs and so they will fail miserably again and so will drag the inevitable results just a bit longer until severe down and or eventual crash. JMHO
they are down because of china news and how it is effecting currencies….euro continues to drop
answer to idan question(s)
I think the fed will not do much of anything…keep the rates low for an extended period of time, and more than likely hold off any plans of reducing the balance sheet…I think they will wait to see what happens with the next gdp and unemployment # before we hear a plan….let face it, the only thing the stimulus did was keep companies profits afloat…did nothing for unemployment.. And I also think another general stimulus might trigger a sell off on the idea that not only would we be digging a bigger hole, but we must be in real trouble.
they will probably hold off reducing the balance sheet to keep liquidity in the market…I think the market will only tank if they report something so negative that the bulls can’t spin it in their favor like they have been doing..
Where/when do options come into play with this rally? are options favoring a further climb into options expiration? we may climb into opex and then fall.
wow..china is really selling off..anyone know when their stress test results are getting reported?
HANG SENG 21,563.00 -225.00 NIKKEI 225 9,540.00 -20.00 SPI 200 4,507.00 -52.00
HANG SENG 21,528.00 -260.00 will get worse dropping like a lead balloon timberrrrrr!
FLASH CRASH PART DEUX.
http://www.bloomberg.com/news/2010-08-10/most-asian-stocks-fall-before-fed-rate-decision-national-australia-drops.html
Have a friend that works at a firm that deals with clients that have $1m+.
Talked to him and he told me to just buy PST and GLL for the next 2-4 years.
Any thoughts on this Woo or Idan?
Is this based on the company fundamentals then?
It has to be based on company fundamentals, cuz PST has no sign of a bottom on the charts. GLL does but it needs to break 43.61 before i can get long.
The strangers are at it again.
SPY 104 WEEK LOW
666.67
SPY 52-WEEK HIGH
122.12
Do you know what 122.12 is?
The world is suppose to end on the 12th month, on the 21st day, of the 2012 year!! 122.12!!
What makes anyone think QE2 will be anything but a disaster for rates in a contracting social mood environment? The Fed got away with QE1 because P[2] was an uptrend recovery period for social mood.
If the Fed announces QE2 the amount of sellers will likely flood the market (to gladly dump their risk) and overwhelm wouldn’t you think? And the ensuing effect will likely be deflationary as rapidly rising interest rates will cause all kinds of debt defaults and strains on the system. Therefore total money (credit) will contract at a rapid rate which is deflation. Borrowing costs will skyrocket for corporations and their record $7.2T in leveraged debt (record cash my ass!) will be hard to rollover. The whole system is likely to implode as it snowballs into a full-fledged panic. Millions of jobs will be lost which will again be deflationary. The already overstrained budgets of governments would implode for good. This would be P[3] and the beginning of the unraveling of the Great Ponzi.
The false analogy is Japan! Japan got away with QE for many years because social mood of a Grand Super cycle upswing had not yet turned full force to the downside! Social mood accommodated QE. To assume that we will, at no worse, have a “lost 2 decades” and take comfort that would be the “worst” to happen is a dangerous assumption!
The Fed cannot support the entire world’s bad debt as it dwarf’s their ability to do so nor do they have the political capital to even try.
I repeat, QE2 will be a disaster and if your a bull you better hope they don’t do it. “Fight the Fed”? There is no need to fight the Fed as the Fed is already shooting itself in the face, ass, and legs. Just look at their crappy balance sheet.
zee, sam , exaltedangel. when you quote daneric at least give him credit. This post is far too wise for a child to make. How is the fantasy portfolio doing?
http://danericselliottwaves.blogspot.com/2010/08/weekend-charts-and-stuff.html
ohh your silly 2012 garbage gives me a good laugh. I bet you think 9-11 was an inside job don’t ya?
keep up the comedy. Your friend GS
I KNOW 9-11 had the backing of the few within the US government, including the Bush family, but I don’t believe in 2012 which is something totally different.
I live in NY and drive from Long Island to NYC 2 – 3 times a week. The “new” retro NY license plates now have FAS and FAZ beginnings. Almost every time I see a FAS lic plate, FAS is up, and vica versa. Strange. Guess it’s like the guys calling for drops in the market based on astronomy. IMO pure luck…ya got a 50 / 50 shot of getting it right, but it is still eerie. PS — I took the train to work today, no FAS or FAZ bias….
give me a break. I am not a W fan, actually think he was a jerk…hate religion mixed with politics. But IMO your post is silly.
(Meant for mind the gap that he KNOWS the Bush family backed 9-11)
It wasn’t meant to start a discussion here on the Bush family. I don’t want to prove this to anybody either. If anyone wants to find out they can search for themselves and see (if they can) the evidence. It’s as obvious as day light and I said it when the first plane hit.
lol. Can’t we just stick to market analysis because… well, lol.
GOOD NEWS
I am back guys and will post this week
ANOTHER GOOD NEWS
I created a blog http://bigboysactionwallstreet.blogspot.com/
My intent is to just post some charts in that blog, since I am accused of not posting charts. Yesterday I posted one chart there.
SWBB
ok zee i’ll check it out……………..lolololololololol…….. when will you grow up………………………
LOL, The ‘real zee’, aka moi, is only 20.. lmao I have tons of growing up to do .
Hi Everyone ,
I think we will drop hard for the rest of this month …
Believing top is in for the year , bottom is not …
Anyone listen to Tom Obrien ar TFNN .. He believes the dolllar will go to 90++
The Euro will go to about 115 latter on this year and Gold will drop at least $100 plus
Have a Blessed day
I’m with you 100% on that my friend. Looking for a 2% down day today, if not more! At least another 5% down by the end of the month.
This time I made big money on your post. Sold a bunch of puts at the bottom, 5 minutes after you posted. You should consider renting yourself out to the big boys as the worlds best 100% contrarian indicator.
I don’t think today will be a hard down day, it mostly only several point loss or green.
Haha okay character disorder guy AKA weasel, you just keep having fun, after all that what we’re for right, to antagonize and criticize and make fun of each other. Ooops, I mean to share opinions about trading, wait.. I guess your here for the former and I’m hear for the latter, so I’ll keep sharing my opinions, and you keep attacking and ridiculing since that’s what’s your here for. Okay, see you later weasel, have a great one, look forward to your next attack.
Disordered weasel or not, you learn nothing from people who agree with you. I rebuilt my put inventory when the market shot up after the Fed meeting. You could have made a lot of money too, if you understood the relationship between your emotions and the market.
Typical BS, market gaps down big out of the box but by EOD will be green. Take what profit you can now I guarantee that by EOD green.
not this time…data is getting weaker…and fed is not going to do anything significant
Sold my AGU.TO puts for a good gain. Big down move this morning. I may buy them back after it retraces as I can see it go down to $65 in a hurry.
I just don’t see this market going down too far today unless the fed really messes up. As long as we stay above 1107 I wouldn’t short. The first 9-10 trading days of August are generally bearish. If we capitulate today then we may see an up leg to 1140 finally. I’ll be on the sidelines today sitting on 100% cash.
Picked up another 100 BP @ 39.40 average 40. Will sit back and watch.
Low pressure off my coast here in SW Florida could develop into a tropical depression that could turn into some rough weather by the time it reaches northern Gulf could have impact on oil fields concerning relief well BP is trying to finish.
Within the hour market will be well under being down -100. Look for the -50 range until the fed meets and after than will storm back to green. JMHO
Just your opinion, I thougth you guaranteed green ending above. You mean you aren’t sleeping with the big boys like others on this blog? kidding….gl all
Watch and see if I am not right again.
Hmmmmmmmm as I said below -100 within the hour pegged it.
very true, not so sure you’re right about the EOD being green though, but we’ll see..
The reason I believe that we will end green is I know the fed will not let the economy dive with bad news. I am sure they have instructed the puppet man to be very careful with what he says. Once the uncertainty of what they will do is appeased that will make everyone “happy” again so the lemmings can continue their march.
Today I’m not making any predictions for the close. Fed language is critical and most of what they can say would have a bearish bias. Expect rapid swings after they announce before the market settles on a direction.
Well then how do you explain what Bernanke said last time. How can Bernanke say “unusually uncertain”. That caused the market to plunge into close. It seems like the FED is more realistic than the government.
Well because what he said was exactly the truth and saying that does nothing more than give him a chance to cover his arse all well knowing the economy is infact screwed with a TV president that has no clue what he is doing. Therefore I am sure he has been instructed by the hand that is running this train to paradise to be very selective with the words he chooses to desscribe the economy with. Actually the FED does know what is NOT going on while the government is a runaway train that is certain to run off the tracks but until then everything is just “rosy” and wonderful. I really don’t expect anything to come from this meeting. They do not want to show any kind of panic they just keep telling themselves they need more time. There is always a day of reconning and that day is closer than some may believe. JMHO
A “borrowed” post from another blog I enjoy following….
I don’t trade news…… But the saying is buy the rumor sell the news…..
Many think QE2.0 is very bullish and it would be, but not from the current level. The Fed has a lot of bullets but they use bullets when market is up over 50% in a year and a half. What does that tell you? Things obviously are overvalued….
In 1929, on Black Thursday President Hoover signed something called the Smoot Hawley Tariff Act. The protectionism and freezing of trade and credit amplified the debt….. Now QE2.0 and this are different…. but the message might be similar… that things are not well and we have a debt crisis.
This may seem that I am bearish, but do I know if QE2.0 is on the way? No… Do I know the reaction… no… I just know how I will react to price movements through various bullish and bearish scenarios
Again, I do not trade the news and I can’t recommend it…. but what I can recommend is to read the market. Bullish or bearish don’t let whatever news the Fed blabs out. Why? Because the market may do the exact opposite of what you would think logically will happen. It is a pure deception game. Just like bulls are hoping for breakout, bears are hoping for breakdown. I just hope to learn, read, and hopefully trade it well.
I don’t think anybody is certain as to what outcome is but these charts below point to a move higher.. which is what I think the outcome will be but the open and movement pre Fed may change that…
http://2.bp.blogspot.com/_RHfXXuyE7EA/TGDYwzSo5...
http://2.bp.blogspot.com/_RHfXXuyE7EA/TGDYwuVdI...
If I go long it is likely on prices prior to Fed or retest of 1126-1128 S&P on breakout. If bullish play doesnt materialize I will start vacation early.
(Edited by author 9 hours ago)
I’ve always had a problem with this saying: “whatever you think the market will do the opposite.” This implies that you shouldn’t think because it doesn’t make a difference. I can see some people thinking that if they think something will happen it doesn’t necessarily mean that it will. But to say the above quote you’re just second guessing yourself. If you have a system that works and make decision based on that and minimize your losing trades I don’t see how you could fall victim to thinking you’re right, and believe me I’ve been burned before by my own thoughts.
Got long some SSO at 37.69 and BP at 39.57
sold the BP at 39.93, need some ammo
Bought back 1000 shares of BA right now at $68.20.
There’s a clear outperformance of Tech Vs Financials today.
market needs to break 1119.7 at the 50ma and trend line to get bullish.
There’s a good chance VIX is going to keep rising into tomorrow and hit that trend line cross.
http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=3&mn=0&dy=0&id=p94787461628&a=204018771
EXACTLY as I said last week 1128 is VERY IMPORTANT. SURE ENOUGH market did exactlly WHAT I TOLD YOU. Now I am not saying we are heading down from here HUGE, but look the level I TOLD YOU several week ago. Market could not pass 1128 for more than a week and this is how EXACT i trade the market.
Woo, do you remember when market was at 1120 I said 1128 is the target and you said it should go higher than 1135, then I said I guess 1128 is VERY IMPORTANT. I posted a chart yesterday why I said 1128. The chart is at http://bigboysactionwallstreet.blogspot.com/
Now bey the end of this week I will see if big boys want to push this market back up and break MY IMPORTANT resistence, or no, then we will trade what big boys tarde
SWBB
the 1128 was a good short term call. well done sam =)
Thanks sam
The market has dropped south of the 1 month channel, as well as a longer term trend line, and a number of other supports in that 1115+ area.
Short term RSI seems close to oversold though (although it can definitely go further oversold). I’m going to wait before piling in the shorts.
Any thoughts on nflx? Breaking out?
i really should have played this channel hits haha
http://stockcharts.com/h-sc/ui?s=NFLX&p=D&yr=2&mn=0&dy=0&id=p58036972787&a=204535071
looks like if it can break 128 it’s a solid buy. Watch out for wedge formations here. we could knock back down to that trend line below.
That is one nice sick move. Kenny’s blog actually posted it as a breakout, recommmended buy @$ 124.10.
Apparently good news where they now have exclusive rights to streaming movies from 3 studios.
(sick in a good way)
yeah…rise to trend line. retest 50, and break north.
kenny is right that it broke out of a descending trend line based on peaks. only problem is, if it’s going to cup and handle, or form a new wedge. we’re now sitting below that recommended buy point. technically as long as we stay above that trend line things should be fine, but if you have calls and the market moves sideways, you could be looking at decay.
This could also be considered a shoulder, which could allow for a dangerous dip to come.
I’m waiting for the $128 break personally.
2 part question:
If the Fed has an ease in it, do we go higher?
and anyone playing Disney Earnings? Last to report tonight
The fed statements can be twisted bullish or bearish, whether they do the QE or not. So I would just look at the technicals. I’m leaning to the short side. I wouldn’t go long until we close above 1131 and consolidate some.
The fed statements can be twisted bullish or bearish
———————————————————————–
I agree. the statements release is mostly a key time for change. bullish or bearish is not fully determined by fed statement.
both these replies are very true. the immediate market action doesn’t always reflect the true nature/effect of the news.
That was fun, sold my SSO at 38.15
and long DIS at 35.25
ohhhh. i’ve been wanting to play DIS earnings as i mentioned last week. good luck man. i think DIS is going to rock. i have no chart, but just that gut feeling.
some SPY calls for fun. 1138 still looks like a good target to me based on fib projections.
if we can even make a hop to 1120, i’ll probably sell my calls at a limit, or raise my stops right away to profit. if we drop below 1115 again, i’ll consider selling at a loss.
sold. rather not risk it.
bought aug 113 calls @ 1.00
sold aug 113 calls @ 1.20
This is what I was basing my trade off of:
http://stockcharts.com/h-sc/ui?s=$SPX&p=60&yr=0&mn=3&dy=0&id=p82162634468&a=160222837
Was hoping for a rise to that pink trend line with a sustained breakthrough of 50ma and trend line. instead the market starting backing off, which was a little scary.
now it’s breaking back above which is a bullish sign. if we can sustain that trend line, we should get the rise to 1138 i was talking about.
Woah.. thats a big 1 min candle.
“23 Mar 2010 … I am a fund manager in montreal who charts in his free-time, if you have any questions send them to zeeshan”
Yes, and i am a full time porno actor and desired by millions of women on dozens of continents.
Fed takes small easing step on weaker outlookStory
Comments Screener Alert Email Print ShareBy Greg Robb WASHINGTON (MarketWatch) — Federal Reserve policymakers on Tuesday decided to take a small easing step given that the recovery is likely to be more modest in the near term than had been expected. The Federal Open Market Committee announced that it would reinvest maturing mortgage-backed securities back into the market so that its balance sheet does not shrink. Fed watchers described this as a symbolic move designed to show concern with the outlook. As expected, the Fed kept its benchmark interest rate at a record low level. The central bank made no changes to the key pledge to keep rates “exceptionally low” for an “extended period.” Thomas Hoenig, the president of the Kansas City Federal Reserve Bank, dissented for the fifth straight meeting in favor of getting rid of the “extended period” pledge. He also said he did not support reinvesting MBS securities.
thanks for the quick post dave!
Anytime woo
So they decided to by debt rather than mortgages big mistake. The lemmings have no clue either.
Once people realize this crock o crap market will tank.
let’s see if 1118 holds.
Hmmmmmmmmm I pegged it again as the greenback gets wiped out. Imagine that another miraculous recovery. I can read this crap like a fricken book. The train to paradise is unstopable go long go strong. Choo choo!
but isn’t the fact that they said they would buy more treasuries if need be bullish? And I don’t trade options, but isn’t options expiration right around the corner going to hold us up for a while?
The morons need to buy more of the mortgage back securities not treasuries. That’s what has what has put the market where it is. Housing is in freefall as forclosures keep mounting. 40 more banks will be taken over by FDIC shortly. Funny how they don’t say anything about that.
I don’t know, I feel like a deer in the head lights. It feels like whatever move I make it’s the wrong move and it could go against me so I’m just sitting tight.
Ditto here. However, my inclination is a downdraft into the close. This miraculous recovery from today’s lows, seems a little early and very suspect. I’m not sure they can, or want to, hold this market up forever. We always have to be mindful that money is to be made both directions, and only the large players know the eventual direction and will position themselves accordingly.
what’s going on???!
I’m not near a tv.
Exactly what I told you would happen in my post #8. Is anybody really this surprised?? Green EOD.
i don’t know, sometimes the first reaction to the fomc is the wrong reaction
Logic does not work here. Whatever you think will happen it is the opposite. Take it for what it is worth but playing short in this manipulated market will only cause you grief and lots of lost cash.
Let’s not get ahead of ourselves, we still don’t have a green day.
thanks. i am long and short. sometimes the same shares at the same time via options. the market goes up, down, it does not matter as long as the position is correct.
Actually I’ve been playing the short side since last week and all 4 of my trades were nice winners.
1118 held. I tried to buy TNA, and my limits just kept on missing! I was trying to get in the low $42 area. And now it’s near $43. Jeesh.
short term SPX RSI really overbought. Needs a breather. Let’s look for 1122.5 to hold.
i really really really hope that my TNA position does not bite me in the ass tomorrow. i want to believe in my 1138 fib projection target…but part of me is worried.
currently sitting with a $42.95 position (HATE that I missed the low $42s entry). Will hold into tomorrow.
not sure if you can view this 1 month chart or not:
http://stockcharts.com/h-sc/ui?s=$SPX&p=5&yr=0&mn=1&dy=10&id=p32281430540&a=181738042
Might end up losing money into tomorrow on my TNA. Can’t complain about the 20% SPY option profit though. We’ll see what tomorrow brings. The 1122.5 area should hold into close. If 1118 breaks, then I’m taking out all long positions.
This type of price action in the spy is starting to worry me.
I’m starting to think something bad is going to happen.
Up big, down big…good grief.
Really now ya think? As long as the lemmings buy the BS they dole out time will come when all these false hopes they throw out will infact end with one step left……………….off the cliff! Rut ro they think to themselves, as they begin the descent, they tricked us.
Yeah, it hit 113 and bouced lower. I’m more bearish at this point seeing that everybody is looking a move higher, sitting in cash feels a lot better.
Just a reminder……today is the Bradley Turn date.
Why not flip a coin. How can astronomy call a turn day 8 months in advance? If it works, I suspect it’s because lots of people believe in it and perhaps go short in advance?
In some respects, no different than TA!
Which means????
It’s based on astrology, and typically marks a change in trend.
Ok, what’s been your experience with this? Is this similar to those Gann turn dates?
The similarity is neither work.
So today’s gap got closed on the SPY. 113-113.20 has shown pretty good resistance, if it doesn’t break on the next try (the 4th time) then we’re heading south first.
The fact that we’re not turning the corner and going higher is bearish in itself. Considering buying back AGU Oct puts, but it looks like it also wants to fill in this morning’s gap.
Taking a small shot 150 shs IT @ 28.25
Sold DIS AH at 36.10
very nice =)
also don’t have to worry about risk holding into tomorrow.
TYVM got lucky, as it traded above 36 for only a few seconds. I made my bet, I was right, and now I am out.
yeah…that was a beautiful limit sell.
it looks like it didn’t break resistance with the good earnings. take what you can.
Major Credit Bubble Contractions of the last 200 years – The 3 past experiences (1825, 1873 and 1929) all ended in severe and protracted depressions where the prevailing manic euphoria eventually succumbed to disaster. You will hear certain viewpoints from “experts” today that policymakers took little action or took the wrong action or acted too late in the past and the same mistakes will not be repeated today.
So let us explore history for ourselves. This from the July 11, 1932 edition of “Barrons”: “The Federal Reserve policy of cheapening credit through the purchase of government bonds has been unable to make a dent in the conservatism of borrower or bank lender, in short, every anti-deflationary effort has yet to provide positive results. The depression is sucking more and more bonds into its vortex.”
Here is another quote from a Bank of England report following the catastrophic end to the 1825 mania: “We lent by every possible means and in modes we have never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on Exchequer bills of exchange to an immense amount, in short, by every possible means … seeing the dreadful state in which the public were, we rendered every assistance.” The general economic contraction that ensued lasted until the mid 1840s.
So much for policymakers sitting on their hands.
Now let us inspect the level of confidence in the ability of the central planners to readily stabilise the financial system. This time from “The Economist” on October 4, 1873: “There is not the slightest doubt that the suffering of New York has been kept within far narrower limits than would otherwise have been the case by means of the intimate connection which the [telegraph] cable gives it with London.”
Here is another quote from that period. This from a New York newspaper at the first serious sign of the downturn in 1873: “True, some great event may deflate the commercial bubble of the hour, and create convulsions; but while the Secretary of the Treasury plays the role of banker for the entire United States it is difficult to conceive of any condition of circumstances which he cannot control. Power has been centralised in him to an extent not enjoyed by the Governor of the Bank of England. He can issue the paper representatives of gold, and count it as much as the yellow metal itself. [He has] a greater influence than is possessed by all the banking institutions of New York.” So the assumption of the day was that the authorities would quickly have things under control thanks to advancements in financial administration at the highest level. However the bursting of the bubble in 1873 created an economic contraction lasting until 1895. Even up to 1939 some authors were still referring to the period from 1873 to 1895 as “The Great Depression”.
Here is our modern day version: “The truth is that Fed [U.S. Federal Reserve] governors, together with their crack staff of Ph.D economists and market analysts, are as close to an economic dream team as we are ever likely to see.” – Gregory Mankiw, Harvard economist and textbook author, New York Times, December 23, 2007.