| This is a good question about the macro US economy. In general I agree with GP. Fact:
The Fed has injected large amounts of cash into the asset markets using http://en.wikipedia.org/wiki/Quantitative_easing . I've never added up the cash as a percentage of GDP or one of the Ms, but it always seemed significant (i.e. 5-10% of GDP, but this is debatable). I should caveat by saying that this cash never entered general circulation, which has meant treating it as part of the monetary supply is tricky. Now, based on this fact of Fed intervention there are a few opinions: 1. While the Fed directly isn't buying equities (i.e. stocks, but this is as far as we know), its presence means that all the other cash holders have to seek out other investments to get inflation-beating rates of returns. There isn't hard data to support this, but it is the conventional wisdom of both people in the game and macro economists. 2. The magnitude of the impact on the asset markets is up for debate. I've seen numbers as low as -5% and has high as 60% of last year's stock market returns can be attributed to the Fed intervention. Some of the difficulty is that there was large federal fiscal stimulus impacting during this time, and counter-intuitively there is some argument that the Fed neutralized the fiscal stimulus to hold inflation rates constant. The important part is that there was a stock market surge, and it is not a result of retail investors pouring in money: It is a result of institutions balancing away from bonds to stocks (this is what the GP means by "supply-side"). It's just not clear if the institutions did it because they have confidence in the economy or if they were "forced" by the Fed. The "why" is opinion, and many people believe the fed is the "why." 3. On the micro side, seeing 20-something kids get 150k budgets to screw around for a year is maddening. "It's ok, VCs play the numbers game... we just need one tulip to pay 100x." There is too much money chasing "talent" right now, and should the correction to the asset market happen this year (as I predict from the fed's cessation) then we will see the startup bubble unwind. |
Nonsense. This is but an externality.
What is maddening is the current state of the financial system as a whole. Though its intellectual underpinnings should have been completely shaken by the events around 2008 and the subsequent rescue of its champions, vested interests would prefer to pretend the emperor still has clothing -- and thus the externalities of QA, of which startup money is actually among the most palatable.