Boom and Bust, from Gary Rogan

February 21, 2013 |

I came across this interesting graph, which isn't likely much of a surprise given where the market is these days–no fear and all is well in the world. What I don't get is that absent 1987, there are few drops in the trendline, and it's been a notable feast and famine starting in 1997 or so. Question from the ignorant: what happened in 1997? There was LTM in 1998, but the upswing seems to precede that.

Jordan Neumann writes: 

Asian currency crisis. Some on this site could tell you more about it.

Pete Earle writes: 

Currency hi-jinks which began in Thailand, spread to Indonesia, South Korea, the Philippines, Malaysia, Singapore, Hong Kong, and resulted in a number of short, sharp recessions. 

Gary Rogan writes: 

I read something about that series of recessions a few months ago that seemed quite instructive to me. While there were a small number of countries that had what could be described as hi-jinks, most of them did not. The way global investors reacted was indiscriminate though, and they pulled out capital from anything that remotely resembled a dangerous Asian duck, whether or not it walked or quacked like one. This fear response can probably be generalized to how different panics start. 





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3 Comments so far

  1. Ulysses de la Torre on February 21, 2013 3:07 pm

    Also in the 1997-99 period: Glass-Steagall was repealed. Coincidence or not?

  2. Ari Siegel on February 22, 2013 1:53 pm

    I believe you’re running into a scale/normalization issue, because prices from 1950-1985 were 16 to 199, and prices from 1986-2013 were 200-1500. So a fall from 119 to 62 (a 48% drop), which occurred from 12/11/1972 to 10/3/1974, just looks like a blip on the map - even though it rivals the 58% drop 2007-2009, and is almost the same as the 49% drop 2000-2002. There was also a 36% drop ending in May 1970.

  3. Greg Rehmke on February 25, 2013 4:17 pm

    The end of wage and price controls, return to relatively sound money, transportation and financial deregulation in the end or Carter/beginning or Reagan years were key to the 25 year boom. Also key was Kemp/Roth tax reduction followed by the big 1986 tax reform and simplification. “Showdown at Gucci Gulch” is an excellent report on the unlikely Tax Reform Act of 1986. Laffer and Moore’s “End of Prosperity” (2008) explain the economic dynamism let loose by deregulation. High-yield (”junk”) bond sent capital to a range of entrepreneurs whose diverse enterprises revitalized many industries.


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