Understanding/Applying "Feedback Loops"
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

FEEDBACK LOOPS:  A VICIOUS CYCLE.  I’m slowly yellow-highlighting passages on every page of the little gem of a book I found at the annual New Paltz library sale:  THE RETURN OF DEPRESSION ECONOMICS (1999) by Paul Krugman.  For those of you who are students of economic history, ala my Principle of Economic & Stock Market History, I’d strongly recommend this book as the well-known author is insightful, a good writer and provides (and clarifies) some great economic history.  One section, appropriate to mention today explains “feedback loops.”  Briefly this is a circular process of how a loss of confidence, financial crises and falling currencies/rising interest rates/slumping economies all form a negative loop.  And when they get started, how they feed on each other.  Schwartz View:  Today, we’ve experienced the first two.  First, a major loss of confidence as shown by consumer confidence plunging here in America and in Europe too.  Which fits into Robert Prechter’s view of how economic slumps get started.  Second, we also obviously have massive, massive financial losses caused by a financial crisis, “the worst crisis since the Great Depression.”  And third, we’re slowly morphing into slumping global economies (which are going to spread greatly if commodities prices continue downward).  My big picture view is that the this current feedback loop or vicious circle will eventually lead to connecting the whole loop, we’ll see falling currencies, especially in the US dollar along with rising long term US interest rates.  Bottom line is:  Don’t get misled by the trees, go up on the mountain top & see what’s really happening.



Posted 08-12-2008 12:51 PM by Richard Schwartz
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