Monday, March 17, 2014

Where Are We In Understanding Bubbles?

Most Bubbles have been identified retrospectively. “Yes, that was a financial Bubble.” Similarly from an historical perspective we can divide our understanding of Bubbles into three major stages, though in all three stages Bubbles have been recognized and analyzed after the fact. These three major analytical stages are Pre-1978; 1978 to 2000; and then after 2000. 

In the Pre-1978 stage financial Bubbles were recognized and assessed as a social or crowd-based phenomenon [Bagehot], even a type of sickness that could affect the masses [Dickens]. There were also detailed descriptions and analyses of specific Bubbles such as the great South Sea, Mississippi, and 1929 Bubbles. Already in the 19th Century Walter Bagehot observed “Much has been written about panics and manias, …; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money; it seeks for someone to devour it; … there is speculation; it is devoured and there is panic.” 


Wednesday, December 18, 2013

2014 Chicago Federal Reserve Economic Outlook Symposium

I was again invited last week to the Chicago Federal Reserve's Economic Outlook Symposium. My predictions last year were 3% real growth, 2% inflation and 7.3% unemployment, considered optimistic at the time but which turned out to be close to the mark though on the low side. My predictions for this year are 3.1% real growth, 1.9% inflation and 6.9% unemployment. 

NJBIZ followed up with me after the conference and wrote the following article on NJBIZ.com.

Monday, October 7, 2013

An Open Letter to the Obama Administration

Dear Mr. President, Secretary Lew, and Chairman Bernanke,

As a way out of the current political and budget disaster in DC, the Administration should - under the Executive Branch's ability to contract and manage the government's assets - consider selling assets to the Federal Reserve. They should begin with the government's hoard of gold, then the National Parks, the National Forest Service, off-shore leases, the GSA, holdings of Foreign Debt, and any other agencies holding real estate or financial assets. They could then use the cash generated to pay down debt. If it needed Constitutional cover beyond its authorities to contract, the 14th Amendment, while perhaps not allowing an increase in the debt limit, would certainly justify a debt pay down.

An additional fiscal benefit would be that once the Fed owned these assets related employees could be put on the Fed's payroll reducing Federal budget expenditures while tax revenues would remain the same. Thus along with the reduction in interest payments the fiscal deficit would be greatly reduced staving off future debt ceiling crises for several years. Further these government employees would now be beyond periodic Congressional machinations. Finally as significant hostage taking ability slipped away the Radical Republicans might be persuaded to act somewhat more responsibly. 

Sincerely, 


Bill Rapp

William V. Rapp
Henry J. Leir Professor
Director Leir Center For Financial Bubble Research
School Of Management
New Jersey Institute Of Technology

Tuesday, June 25, 2013

International Product Cycles, East Asian Growth, And Effect MNE Strategies

[Author: William Rapp, New Jersey Institute of Technology]

The systematic migration or “Flying Geese” pattern of shifting competitive advantage in particular industries from one country to another first proposed by Kaname Akamatsu for the global textile and apparel industries and then extended by Ray Vernon and others to additional industries including steel, ships and automobiles gained much attention in the 1960s through the 1990s as Japan, Taiwan, Korea, the ASEAN Nations, and finally China sequentially entered and exited industries such as textiles, apparel, toys, electronics, steel, ships and cars. However as China has emerged over the last decade and a half as the world’s factory the International Product Cycle or Flying Geese theory seemingly lost its relevance as analysts appeared to assume China’s export competitiveness in low wage industries would continue indefinitely. But perhaps nothing continues indefinitely.

That is more recently China is experiencing the same economic forces in terms of increasing per capita incomes, labor skills, wages, land prices and price inflation as its predecessors such that textiles, apparel and similar low skill low pay industries after first shifting to lower wage areas within China itself are now migrating to lower wage countries such as Bangladesh, Cambodia or Indonesia. Thus China now too seems to be following the same “Flying Geese” pattern.

Click here to download the complete paper.

Risk Management and Contractual Obligations

[Author: William Rapp, New Jersey Institute of Technology]

Many financial analysts, policymakers and regulators have forcefully argued that over $700 trillion in derivatives and other contractual risk management tools are a clear and unambiguous good for financial markets and economic growth because they transfer risk from organizations and individuals wanting stability and less volatility managing principal and cash flows. This wisdom argues risk is shifted to those better able to handle these effects while also dispersing it across a wide range of participants. The recent global financial crisis brings these claims and assumptions into doubt. Indeed these financial instruments may add to the amount risk that must be managed and regulated rather than just transferring it to stronger hands. This paper explains how this occurs and why laws and regulations requiring more capital and the use of exchanges may not be enough to limit contractual exposures and related systemic risk.

Click here to download the complete paper.

Monday, June 24, 2013

Print edition of Boil, Bubble, Toil & Trouble now available

Boil, Bubble, Toil and Trouble is the outgrowth of a project at the New Jersey Institute Of Technology’s School of Management funded by the Leir and Ridgefield Foundations that has evolved into the Leir Center For Financial Bubble Research dedicated to the study and understanding of Financial Bubbles. The material and ideas for the chapters in this book were first presented at a Conference organized by the Leir Center at NJIT and supported by the Leir Retreat Center. However the ideas and concepts they contain have benefitted greatly from the comments and questions of the conference participants and their subsequent inputs and revisions.

The first question posed was whether the participants could agree on a definition of a financial Bubble or how it might be modified for different types of Bubbles. From this evolved the question how one would know when one was in a bubble as opposed to looking back after a bubble had burst and stating “Oh yes! That was definitely a bubble.” Robert Aliber who attended the Conference has defined a bubble as “a non-sustainable increase in the prices of certain currencies and classes of assets.” In this way the journey to a greater understanding of financial bubbles has begun.

Tuesday, June 11, 2013

Boil, Bubble, Toil & Trouble eBook on Amazon.com

Boil, Bubble, Toil and Trouble is the outgrowth of a project at the New Jersey Institute Of Technology’s School of Management funded by the Leir and Ridgefield Foundations that has evolved into the Leir Center For Financial Bubble Research dedicated to the study and understanding of Financial Bubbles. The material and ideas for the chapters in this book were first presented at a Conference organized by the Leir Center at NJIT and supported by the Leir Retreat Center. However the ideas and concepts they contain have benefitted greatly from the comments and questions of the conference participants and their subsequent inputs and revisions.

The first question posed was whether the participants could agree on a definition of a financial Bubble or how it might be modified for different types of Bubbles. From this evolved the question how one would know when one was in a bubble as opposed to looking back after a bubble had burst and stating “Oh yes! That was definitely a bubble.” Robert Aliber who attended the Conference has defined a bubble as “a non-sustainable increase in the prices of certain currencies and classes of assets.” In this way the journey to a greater understanding of financial bubbles has begun.