by Alexander G Rubio
Mon Jun 27th, 2005 at 12:27:42 PM EST
Stephen Roach of Morgan Stanley raises a point that's too often ignored, that there's growth, and there's growth. The simplistic measuring of national economic growth by Gross Domestic Product overlooks the fact that it's not just a question of quantity of economic activity, but also quality. If I borrowed a million dollars and went on a spree, I'd create a lot of economic activity, but it wouldn't be sustainable growth. If the money came from outside the "system" or national border, not only would that economic boost dry out as soon as the money was spent, but it would actually have to be withdrawn, with interest at some point in time.
There’s good growth and bad growth. The former is well supported by internal income generation and saving. The latter is driven by asset bubbles and debt. The United States, in my opinion, has been on a bad-growth binge for nearly a decade, but especially over the past five years.
He then goes on to the main difference between the dot.com boom and the recent real estate bubble:
unlike the equity bubble of the late 1990s, the housing bubble has been built on a mountain of debt
Steeped in denial, the Fed is trying to deflect attention away from its role in this sad state of affairs -- choosing, instead, to focus the debate on the so-called interest rate conundrum.
And the jigg keeps playing:
As former Fed Chairman Paul Volcker noted recently, the saddest thing of all is that no one in a position of responsibility wants to put an end to this madness.
No, but then again madness has a tendency to put an end to itself, but not before inflicting some serious hurt.
Also posted on Bitsofnews.com.