Keynes and bubbles

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Keynes provides a good bubble analogy that fits in today's markets.

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

The bubble of financial speculation has moved over to the enterprise side of the economy. While not being a fan of a bail-out of the auto companies, part of their dilemma is related to the banking problem. Banking is still the oil that moves the economy and right now the engine is running rough because there is insufficient oil.

The consumer confidence has been battered by the financial markets and that is spilling over to the real economy. Now this does no mean that we should turn our attention to the real economy and avoid the tough work in the financial sector. We still have to get the housing problem fixed. We still have to find buyers for mortgage assets. This is not glamorous but must be done.