Final Word

Warnings of Stock Market Bubble

Robert Shiller, an American Nobel Prize-winning economist says he is worried about sharp rises in equity and property prices, especially the boom in the US stock market. “I am most worried about the boom in the US stock market. Also because our economy is still weak and vulnerable,” Shiller said.

According to Reuters, Shiller told Sunday’s Der Spiegel magazine that “I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets… that could end badly.”

In the past several weeks, the Standard & Poor’s 500 index, which is a leading indicator of the US stock market, has been shooting up to record highs.  A growing number of experts are warning that there are signs of a potential bubble in the US stock market ahead.

According to USA Today “Wall Street pros say a bubble is forming in the U.S. stock market. They blame the Fed’s unprecedented stimulus, including its $85 billion in monthly bond purchases for artificially inflating stock prices. There is concern that if the Fed does not dial back its asset purchases soon, stocks could shoot higher and become even more delinked from business fundamentals.”

An American economist, Paul Robin Krugman, has said in a recent article that the US economy is not recovering from the financial crisis of 2007-2008 but that it has entered a “permanent slump”.
“Again, the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing,” Krugman says.

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