I know we all know this with the exception of Jafo but overvaluing investment assets is commonly referred to as an economic bubble. Here are three instances in American history when economic bubbles (in bold below) created havoc in America's economy (note the second directly led to the Great Depression).

The cause of the Panic of 1907 (it is from wiki):
The 1907 panic began with a stock manipulation scheme to corner the market in F. Augustus Heinze's United Copper Company. Heinze had made a fortune as a copper magnate in Butte, Montana. In 1906 he moved to New York City, where he formed a close relationship with notorious Wall Street banker Charles W. Morse. Morse had once successfully cornered New York City's ice market, and together with Heinze gained control of many banks—the pair served on at least six national banks, ten state banks, five trust companies and four insurance firms.

This is H talking: Of course we all now they go on to control about 60 to 70% of the copper at a price of about $70 a share when all the sudden out of nowhere the other 30 to 40% of copper shares showed up in the hands of small time speculators on the streets of New York and the price dropped to about $10 a share. It was a Copper bubble.

The cause of the 1929 Panic that led to the Fed behaving badly (it is from Wiki):

The crash followed a speculative boom that had taken hold in the late 1920s, which had led hundreds of thousands of Americans to invest heavily in the stock market. A significant number of them were borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the U.S. at the time. The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. Because of margin buying, investors stood to lose large sums of money if the market turned down—or even failed to advance quickly enough. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. On October 24, 1929, with the Dow just past its September 3 peak of 381.17, the market finally turned down, and panic selling started.

The late 2000’s Great Recession (from wiki)

According to the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions) the recession began in December 2007. US mortgage-backed securities, which had risks that were hard to assess, were marketed around the world. A more broad based credit boom fed a global speculative bubble in real estate and equities, which served to reinforce the risky lending practices. The precarious financial situation was made more difficult by a sharp increase in oil and food prices. The emergence of Sub-prime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall of Lehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. As share and housing prices declined, many large and well established investment and commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance.

A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. In December 2008, the National Bureau of Economic Research (NBER) declared that the United States had been in recession since December 2007.[ Several economists have predicted that recovery may not appear until 2011 and that the recession will be the worst since the Great Depression of the 1930s.[13][14] Paul Krugman, who won the Nobel Memorial Prize in Economics, once commented on this as seemingly the beginning of "a second Great Depression." The conditions leading up to the crisis, characterized by an exorbitant rise in asset prices and associated boom in economic demand, are considered a result of the extended period of easily available credit and inadequate regulation and oversight.

It seems to me Jafo has now graduated! He is no longer the village idiot, he is now...(drum roll please with a crash cymbal at the end)

THE GRAND POO BAH AND IMPERIAL WIZARD OF STUPIDITY!

The following is from wiki on the Great Depression and is listed as opinion with out much citation, however, it seem relevant here:
Thus, the personal political and policy viewpoints of scholars greatly color their analysis of historic events occurring eight decades ago. An even larger question is whether the Great Depression was primarily a failure on the part of free markets or a failure of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply. Those who believe in a larger economic role for the state believe that it was primarily a failure of free markets, while those who believe in a smaller role for the state believe that it was primarily a failure of government that compounded the problem (H here: I believe this a bit simplistic view propagated by people like Jafo).

It is Heraclitis' position that the Great Depression was caused by both events because the bankers who caused the problems with the free market running wild were the same ones running the Fed that failed to decrease interest rates. It is also my position that they failed to decrease interest rates out of self interest driven by greed (after all they were only human).

It is Jafo's position (at least my interpretation of your opinion after trying many times to actually get you to state your position with some clarity) that the socialist government that had been brewing behind the backs of the three most recent Laissez Faire Presidents (Harding, Coolidge and Hoover) and a radical Laissez Faire / Trickle Down Treasury Secretary (Andrew Mellon) were able to perpetrate the coup of the century by getting the Federal Reserve (administered by Laissez Faire Bankers) to meddle with the Free Market by not doing anything at all! They did not lower the interest rates! That is the mechanism of meddling, not doing anything at all! They did not drop money from a helicopter!

You Decide?

You logic be funny.

Oh where is the magical wit Oh Grand Poo Bah,

No shit on my head while I am shopping for underwear in Kmart obviously after my medication has worn off and they are coming to take me away ha ha ho ho he he...to the funny farm!

I am disappointed. Surely, Surely you can do better than that?

When you wear a hat, does it make it smell worse?

OK Boys and Girls,

Let's compare and contrast the two summary statements on the causes of the Great Depression:

How much did the repeal of Glass Steagel (or is it Stegeal? for the picky who didn't know what that VP meant by potato.) in the 2008 echo meltdown? Have heard that not even free market supporter Ron Paul had voted to repeal GS. We do know, that many saw the writing of doom on the wall after GS was repealed.

With the junk cars Detroit was building in the 70s, am not sure how much free market benefited the people. Oh but we had lots of fun, around LittleTON back then, killing each other in them high powered race cars.

Don't forget this statement:



Wow, what a point you make?

As usual, you can't even get the argument right. That is not my position. My position is, meddling with capitalism via a central controlling structure IS socialism. Central banking IS socialist. The Fed is a socialist construct. The Fed was put in place BY a socialist. The Great Depression was caused by the Fed.

Now, what part don't you get again? Oh that's right, it was the fault of capitalism, even though the Fed is clearly not a capitalistic construct, it is a socialist one.

So again, shit for brains, you don't know what you are talking about.

In which to date he has provided ZERO evidence of other than his own statement backed up by no facts. I have shown fact after fact how it was the bungling of the Fed and the actual existence of the Fed that caused the great depression. I have even put forward Nobel prize winning analysis to back it up.



Which had the Fed not been there, their self interest would have led them to take action, but since the Fed was there to protect them, they felt no need, and in fact, the Fed created an incentive to not do anything to help the smaller banks.

So yeah, you decide.

No point, just an honest response to your magical powers! As far as directing it at you personally, well isn't that your game?

I think it is pretty clear the Fed was created by Bankers with the help of Industrialists. No sense in going over it again. If you say JP Morgan and John D Rockefeller were socialists, who am I to argue!

Hey Poo Bah, The Fed is the one that didn't act and they were run by bankers!

I am looking here at a Ron Paul hand out and what does it say

"The Fed is an unconstitutional and secretive system ...oh wait...the good bit...CONTROLLED BY BANKERS..."

That is right on this Ron Paul 2012 Restore America Now Brochure!